Archives For politics

Once again, my constitutional law professor has embarrassed me with his gross misunderstanding of the U.S. Constitution.  First, he insisted that it would be “unprecedented” for the U.S. Supreme Court to overturn a statute enacted by a “democratically elected Congress.”  Seventh-grade Civics students know that’s not right, but Mr. Obama’s misstatement did have its intended effect:  It sent a clear signal that the President and his lackeys would call into question the legitimacy of the Supreme Court should it invalidate the Affordable Care Act (ACA).  Duly warned, Chief Justice Roberts changed his vote in NFIB v. Sebelius to save the Court from whatever institutional damage Mr. Obama would have inflicted.

Now President Obama – who chastised his predecessor for offending the constitutional order and insisted that he, a former constitutional law professor, would never stoop so low – has both violated his oath of office and flouted a key constitutional feature, the separation of powers.  I’m speaking of the President’s “administrative fix” to the ACA.  That “fix” consists of a presidential order not to enforce the Act’s minimum coverage provisions, a move that President Obama says will allow insurance companies to continue offering ACA non-compliant policies to those previously enrolled in them if the companies wish to do so and are able to obtain permission at the state level.

This is, of course, nothing more than a transparent attempt to shift blame for the millions of recently canceled policies.  Having priced their more generous ACA-compliant policies on the assumption that there would be an influx of healthy customers now covered by high-deductible, non-compliant policies, insurance companies would shoot themselves in the foot by accepting Mr. Obama’s generous “offer.”  Moreover, state insurance commissioners, aware of the adverse selection likely to result from this last-minute rule change, are unlikely to give their blessing.  (Indeed, several have balked – including the D.C. insurance commissioner, who was promptly fired.)

But putting aside the fact that the administrative fix won’t work, the main problem with it is that it is blatantly unconstitutional.  The Constitution divides power between the three branches of government.  Article I grants to the Congress “all legislative Powers,” including “Power to lay and collect Taxes.”  Article II then directs the President to “take Care that the laws be faithfully executed.” With his administrative fix, President Obama has essentially said, “I promise not to execute the law Congress passed.”

Moreover, the President went further to say, “I promise not to collect a tax the Congress imposed.”  Remember that the penalty for failure to carry ACA-compliant insurance is, for constitutional purposes, a tax.  That was the central holding of last summer’s Obamacare decision, NFIB v. Sebelius.  When the President assured victims of insurance cancellations that he would turn a blind eye to the law and allow their insurers to continue to offer canceled policies, he also implied that he would order his administration not to collect the taxes owed by those in ACA-noncompliant policies.  Indeed, this matter was clarified in the letter the Department of Health and Human Services sent to state insurance commissioners notifying them of the Obama Administration’s decision not to enforce the law as written.  That letter stated that the Department of the Treasury, which is charged (through the IRS) with collecting the ACA’s penalties/taxes, “concur[red] with the transitional relief afforded in this document.”  That means the IRS, pursuant to the President’s order, is promising not to collect a tax the Congress has imposed.

This, my friends, is a major disruption of the constitutional order.  If the President of the United States may simply decide not to collect taxes imposed by the branch of government that has been given exclusive “Power to lay and collect Taxes,” the whole Constitution is thrown off-kilter.  Any time a president wanted to favor some individuals, firms, or industries, he wouldn’t need to go to Congress for approval.  No, he could just order his IRS not to collect taxes from those folks.  Can’t get Congress to approve subsidies for green technologies?  No worries.  Just order your IRS not to collect taxes from firms in that sector.  Or maybe even order a refundable tax credit.  You think Congress has enacted job-killing regulations on an industry?  Just invoke your enforcement discretion and ignore those rules.  Whew!  This sure makes things easier.

President Obama twice promised, under oath, to “take Care that the Laws be faithfully executed.”  Unfortunately, he also rammed through a terrible law.  Our Constitution now gives him the option to enforce the enacted law and pay the political price, or seek Congress’s assistance to change the law.  On the particular matter at issue here, Congress is willing to help the President out.  On Friday, the House of Representatives voted to amend the law to allow insurance companies to continue to offer ACA non-compliant policies.  Mr. Obama doesn’t like some details of the legislative fix he’s been offered.  Unfortunately for him, though, he’s not a king.  He has to work within the constitutional order.

At least, that’s what I thought I learned in constitutional law.

Like most libertarians I’m concerned about government abuse of power. Certainly the secrecy and seeming reach of the NSA’s information gathering programs is worrying. But we can’t and shouldn’t pretend like there are no countervailing concerns (as Gordon Crovitz points out). And we certainly shouldn’t allow the fervent ire of the most radical voices — those who view the issue solely from one side — to impel technology companies to take matters into their own hands. At least not yet.

Rather, the issue is inherently political. And while the political process is far from perfect, I’m almost as uncomfortable with the radical voices calling for corporations to “do something,” without evincing any nuanced understanding of the issues involved.

Frankly, I see this as of a piece with much of the privacy debate that points the finger at corporations for collecting data (and ignores the value of their collection of data) while identifying government use of the data they collect as the actual problem. Typically most of my cyber-libertarian friends are with me on this: If the problem is the government’s use of data, then attack that problem; don’t hamstring corporations and the benefits they confer on consumers for the sake of a problem that is not of their making and without regard to the enormous costs such a solution imposes.

Verizon, unlike just about every other technology company, seems to get this. In a recent speech, John Stratton, head of Verizon’s Enterprise Solutions unit, had this to say:

“This is not a question that will be answered by a telecom executive, this is not a question that will be answered by an IT executive. This is a question that must be answered by societies themselves.”

“I believe this is a bigger issue, and press releases and fizzy statements don’t get at the issue; it needs to be solved by society.

Stratton said that as a company, Verizon follows the law, and those laws are set by governments.

“The laws are not set by Verizon, they are set by the governments in which we operate. I think its important for us to recognise that we participate in debate, as citizens, but as a company I have obligations that I am going to follow.

I completely agree. There may be a problem, but before we deputize corporations in the service of even well-meaning activism, shouldn’t we address this as the political issue it is first?

I’ve been making a version of this point for a long time. As I said back in 2006:

I find it interesting that the “blame” for privacy incursions by the government is being laid at Google’s feet. Google isn’t doing the . . . incursioning, and we wouldn’t have to saddle Google with any costs of protection (perhaps even lessening functionality) if we just nipped the problem in the bud. Importantly, the implication here is that government should not have access to the information in question–a decision that sounds inherently political to me. I’m just a little surprised to hear anyone (other than me) saying that corporations should take it upon themselves to “fix” government policy by, in effect, destroying records.

But at the same time, it makes some sense to look to Google to ameliorate these costs. Google is, after all, responsive to market forces, and (once in a while) I’m sure markets respond to consumer preferences more quickly and effectively than politicians do. And if Google perceives that offering more protection for its customers can be more cheaply done by restraining the government than by curtailing its own practices, then Dan [Solove]’s suggestion that Google take the lead in lobbying for greater legislative protections of personal information may come to pass. Of course we’re still left with the problem of Google and not the politicians bearing the cost of their folly (if it is folly).

As I said then, there may be a role for tech companies to take the lead in lobbying for changes. And perhaps that’s what’s happening. But the impetus behind it — the implicit threats from civil liberties groups, the position that there can be no countervailing benefits from the government’s use of this data, the consistent view that corporations should be forced to deal with these political problems, and the predictable capitulation (and subsequent grandstanding, as Stratton calls it) by these companies is not the right way to go.

I applaud Verizon’s stance here. Perhaps as a society we should come out against some or all of the NSA’s programs. But ideological moralizing and corporate bludgeoning aren’t the way to get there.

Over at the blog for the Center for the Protection of Intellectual Property, Richard Epstein has posted a lengthy essay that critiques the Obama Administration’s decision this past August 3 to veto the exclusion order issued by the International Trade Commission (ITC) in the Samsung v. Apple dispute filed there (ITC Investigation No. 794).  In his essay, The Dangerous Adventurism of the United States Trade Representative: Lifting the Ban against Apple Products Unnecessarily Opens a Can of Worms in Patent Law, Epstein rightly identifies how the 3-page letter issued to the ITC creates tremendous institutional and legal troubles in the name an unverified theory about “patent holdup” invoked in the name of an equally overgeneralized and vague belief in the “public interest.”

Here’s a taste:

The choice in question here thus boils down to whether the low rate of voluntary failure justifies the introduction of an expensive and error-filled judicial process that gives all parties the incentive to posture before a public agency that has more business than it can possibly handle. It is on this matter critical to remember that all standards issues are not the same as this particularly nasty, high-stake dispute between two behemoths whose vital interests make this a highly atypical standard-setting dispute. Yet at no point in the Trade Representative’s report is there any mention of how this mega-dispute might be an outlier. Indeed, without so much as a single reference to its own limited institutional role, the decision uses a short three-page document to set out a dogmatic position on issues on which there is, as I have argued elsewhere, good reason to be suspicious of the overwrought claims of the White House on a point that is, to say the least, fraught with political intrigue

Ironically, there was, moreover a way to write this opinion that could have narrowed the dispute and exposed for public deliberation a point that does require serious consideration. The thoughtful dissenting opinion of Commissioner Pinkert pointed the way. Commissioner Pinkert contended that the key factor weighing against granting Samsung an exclusion order is that Samsung in its FRAND negotiations demanded from Apple rights to use certain non standard-essential patents as part of the overall deal. In this view, the introduction of nonprice terms on nonstandard patterns represents an abuse of the FRAND standard. Assume for the moment that this contention is indeed correct, and the magnitude of the problem is cut a hundred or a thousand fold. This particular objection is easy to police and companies will know that they cannot introduce collateral matters into their negotiations over standards, at which point the massive and pointless overkill of the Trade Representative’s order is largely eliminated. No longer do we have to treat as gospel truth the highly dubious assertions about the behavior of key parties to standard-setting disputes.

But is Pinkert correct? On the one side, it is possible to invoke a monopoly leverage theory similar to that used in some tie-in cases to block this extension. But those theories are themselves tricky to apply, and the counter argument could well be that the addition of new terms expands the bargaining space and thus increases the likelihood of an agreement. To answer that question to my mind requires some close attention to the actual and customary dynamics of these negotiations, which could easily vary across different standards. I would want to reserve judgment on a question this complex, and I think that the Trade Representative would have done everyone a great service if he had addressed the hard question. But what we have instead is a grand political overgeneralization that reflects a simple-minded and erroneous view of current practices.

You can read the essay at CPIP’s blog here, or you can download a PDF of the white paper version here (please feel free to distribute digitally or in hardcopy).

 

The ridiculousness currently emanating from ICANN and the NTIA (see these excellent posts from Milton Mueller and Eli Dourado on the issue) over .AMAZON, .PATAGONIA and other “geographic”/commercial TLDs is precisely why ICANN (and, apparently, the NTIA) is a problematic entity as a regulator.

The NTIA’s response to ICANN’s Governmental Advisory Committee’s (GAC) objection to Amazon’s application for the .AMAZON TLD (along with similar applications from other businesses for other TLDs) is particularly troubling, as Mueller notes:

In other words, the US statement basically says “we think that the GAC is going to do the wrong thing; its most likely course of action has no basis in international law and is contrary to vital policy principles the US is supposed to uphold. But who cares? We are letting everyone know that we will refuse to use the main tool we have that could either stop GAC from doing the wrong thing or provide it with an incentive to moderate its stance.”

Competition/antitrust issues don’t seem to be the focus of this latest chapter in the gTLD story, but it is instructive on this score nonetheless. As Berin Szoka and I wrote in ICLE’s comment to ICANN on gTLDS:

Among the greatest threats to this new “land rush” of innovation is the idea that ICANN should become a competition regulator, deciding whether to approve a TLD application based on its own competition analysis. But ICANN is not a regulator. It is a coordinator. ICANN should exercise its coordinating function by applying the same sort of analysis that it already does in coordinating other applications for TLDs.

* * *

Moreover, the practical difficulties in enforcing different rules for generic TLDs as opposed to brand TLDs likely render any competition pre-clearance mechanism unworkable. ICANN has already determined that .brand TLDs can and should be operated as closed domains for obvious and good reasons. But differentiating between, say .amazon the brand and .amazon the generic or .delta the brand and .delta the generic will necessarily result in arbitrary decisions and costly errors.

Of most obvious salience: implicit in the GAC’s recommendation is the notion that somehow Amazon.com is sufficiently different than .AMAZON to deny Amazon’s ownership of the latter. But as Berin and I point out:

While closed gTLDs might seem to some to limit competition, that limitation would occur only within a particular, closed TLD. But it has every potential to be outweighed by the dramatic opening of competition among gTLDs, including, importantly, competition with .com.

In short, the market for TLDs and domain name registrations do not present particular competitive risks, and there is no a priori reason for ICANN to intervene prospectively.

In other words, treating Amazon.com and .AMAZON as different products, in different relevant markets, is a mistake. No doubt Amazon.com would, even if .AMAZON were owned by Amazon, remain for the foreseeable future the more relevant site. If Latin American governments are concerned with cultural and national identity protection, they should (not that I’m recommending this) focus their objections on Amazon.com. But the reality is that Amazon.com doesn’t compromise cultural identity, and neither would Amazon’s ownership of .AMAZON. Rather, the wide availability of new TLDs opens up an enormous range of new competitive TLD and SLD constraints on existing, dominant .COM SLDs, any number of which could be effective in promoting and preserving cultural and national identities.

By the way – Amazonia.com, Amazonbasin.com and Amazonrainforest.com, presumably among many others, look to be unused and probably available for purchase. Perhaps opponents of Amazon’s ownership of .AMAZON should set their sights on those or other SLDs and avoid engaging in the sort of politicking that will ultimately ruin the Internet.

Has a piece of legislation ever been subject to as much cynicism-inspiring manipulation as the Affordable Care Act?  It was rammed through Congress, on a totally partisan basis, via an unprecedented use of the reconciliation process.  Its passage required blatant vote-buying with such unjust goodies as the Cornhusker Kickback and the Louisiana Purchase.  Its proponents sold it with bald-face lies that nobody with any sense believes (e.g., “It will reduce the deficit.”), and they credit it with successes for which it is obviously not responsible.

Now the Obama Administration has decided to delay a key, but unpopular, provision of the Act—the so-called “Employer Mandate” that fines firms with 50 or more employers if they fail to provide qualifying insurance to employees working at least 30 hours per week—until after the mid-term elections.  Never mind that the Act itself doesn’t permit the Administration to waive these requirements.  This is “Obamacare,” after all, and that means The Big Guy gets to decide how it’s implemented.  He sure as heck doesn’t want it generating a bunch of lay-offs and hours-reductions right before mid-term elections!

Many in the business community are cheering the one-year delay.  It does, after all, hold off a provision that has been causing firms to reduce workers’ hours, thereby raising the  administrative costs of keeping businesses properly staffed.  But this delay is going to cause huge problems for implementation of the ACA and does nothing to address the biggest problem inherent in the Employer Mandate scheme.

IMPLEMENTATION PROBLEMS

The reporting system connected to (and delayed along with) the Employer Mandate is integral to the ACA’s subsidized health exchanges.  As Michael Cannon has explained, it’s hard to see how the exchanges could possibly work without the reporting system:

. . . Obamacare offers tax credits and subsidies to certain workers who don’t receive an offer of acceptable coverage from an employer. The law requires employers to report information to the IRS on their coverage offerings, both to determine whether the employer will be subject to penalties and whether its employees will be eligible for credits and subsidies.

The IRS both delayed the imposition of penalties and “suspend[ed] reporting for 2014.” As the American Enterprise Institute’s Tom Miller observes, without that information on employers’ health benefits offerings, the federal government simply cannot determine who will be eligible for credits and subsidies. Without the credits and subsidies, the “rate shock” that workers experience will be much greater and/or many more workers will qualify for the unaffordability exemption from the individual mandate. Either way, fewer workers will purchase health insurance and premiums will rise further, which could ultimately end in an adverse selection death spiral. The administration can’t exactly solve this problem by offering credits and subsidies to everyone who applies either. Not only would this increase the cost of the law, but it would also lead to a backlash in 2015 when some people have their subsidies revoked.

Now, the IRS hasn’t yet released its “formal guidance” detailing how the Employer Mandate/reporting system delay will operate.  It’s possible that regulators have come up with some way to offer selective subsidies absent the reporting system.  But given ACA proponents’ heretofore lack of concern about the practicability of the health care law, I wouldn’t hold my breath.

IGNORING THE BIG PROBLEM WITH THE MANDATE/SUBSIDY SCHEME

Putting aside the apparent political motivation for and practical difficulties created by the Employer Mandate delay, the main problem with the delay is that it simply ignores the huge problem created by the ACA’s mandate/subsidy scheme.

The Employer Mandate ostensibly aims to increase employer-provided health insurance coverage by encouraging employers to provide such coverage as an element of their employees’ compensation.  If a covered employer fails to do so, it faces a $2,000 annual penalty for each of its employees who purchases insurance on a subsidized exchange.  When implemented along with the rest of the ACA, however, the Employer Mandate is unlikely to enhance health insurance coverage for lower-income employees.  Here’s why:

  • The ACA subsidizes purchases on the insurance exchanges by individuals whose employers do not offer qualifying insurance at an affordable rate.  The subsidies are inversely related to income.  They are quite generous at lower income levels and reduce to zero once income exceeds four times the federal poverty level.
  • The only subsidy for employer-provided insurance, by contrast, is an implicit tax subsidy resulting from the fact that compensation paid in the form of insurance benefits, rather than wages, is tax-free.  The dollar value of that implicit tax subsidy for any individual is the sum of her marginal tax rate and the payroll tax rate, times the price of the policy.  (For most lower-income workers, the effective subsidy will be 22.65% * the policy price. That assumes a 7.65% payroll tax (1.45% Medicare + 6.2% Social Security) and a marginal income tax rate of 15%.)
  • Absent the penalty provision of the Employer Mandate, the best outcome from the worker’s standpoint would be for the employer to provide health insurance only if the effective subsidy from getting the insurance benefit tax-free exceeds the subsidy the worker would receive if she purchased her own insurance on a subsidized exchange.  Because lower income workers (1) are subject to lower tax rates and therefore receive a smaller tax subsidy from employer provided insurance, and (2) are eligible for large subsidies on the insurance exchanges, they would typically be better off if their employers dropped coverage and thereby enabled them to access the subsidized exchanges.
  • The penalty provision of the Employer Mandate alters this calculus.  Because an employer that fails to provide health insurance must pay $2,000 per year for each employee that purchases insurance on an exchange, a covered employer that cut its health insurance would be willing to raise its employee’s salary by only the amount the employer would have paid for the policy (the price it doesn’t have to pay) minus $2,000 (the amount of penalty it now has to pay).  Thus, in the face of the Employer Mandate, an employee would prefer that its employer provide health insurance coverage only if the effective tax subsidy from getting insurance tax-free exceeds the subsidy available to the employee on an exchange less $2,000.
  • Because the subsidies available to lower-income workers on the insurance exchanges far exceed — by way more than $2,000 – the effective tax subsidy from employer provided health insurance, most lower-income workers will prefer that their employers drop insurance coverage, pay them more in cash, and allow them to take advantage of taxpayer-financed subsidies on the insurance exchanges.

An example may help here.  Suppose an employer wishes to provide $40,000 in total compensation to a 40 year-old employee who is the head of a four-person household.  If the employer were to purchase a family policy for the employee (approximate cost $12,000/year), she would pay the employee $28,0000/year in cash.  The employee would pay no payroll or income tax on the component of his compensation provided as health insurance, so he would receive an effective federal subsidy of $2,718 (22.65% * $12,000).  If the employer were to drop health care coverage and thus drive the employee to an exchange, the employer would have to pay $2,000 and would therefore reduce to $38,000 the total amount she would pay the employee.  The employee would then receive all his compensation — all $38,000 — as take-home pay.  On the $12,000 that otherwise would have been paid as benefits, he’d have to pay $2,718 in tax, but he would now be eligible to purchase insurance on his own at a heavily subsidized rate. The ACA would limit his out-of-pocket insurance expense to 4.52% of annual income ($1,718), which means he would receive a whopping $10,282 subsidy on the $12,000 family policy.  This employee is $5,564 better off if his employer drops coverage (costing him $4,718:  $2,718 in foregone tax subsidy plus a penalty-induced compensation reduction of $2,000) and allows him to access the more generous subsidies available on state exchanges (benefiting him by $10,282).

This is the huge problem with the ACA’s Employer Mandate/subsidy scheme:  The scheme as a whole creates incentives to dump lower-income employees on the subsidized exchanges.  The Obama Administration’s politically expedient delay in implementation of the Employer Mandate does nothing to alleviate this difficulty.  But it might help Nancy Pelosi get her old job back.

Over at the blog for the Center for the Protection for Intellectual Property, Wayne Sobon, the Vice President and General Counsel of Inventergy, has posted an important essay that criticizes the slew of congressional bills that have been proposed in Congress in recent months. 

In A Line in the Sand on the Calls for New Patent Legislation, Mr. Sobon responds to the heavy-handed rhetoric and emotionalism that dominates the debate today over patent licensing and litigation. He calls for a return to the real first principles of the patent system in discussions about patent licensing, as well as for more measured thinking and analysis about the costs of uncertainty created by never-ending systemic changes from legislation produced by heavy lobbying by interested parties.  Here’s a small taste:

One genius of our patent system has been an implicit recognition that since its underlying subject matter, innovation, remains by definition in constant flux, the scaffolding of our system and the ability of all stakeholders to make reasonably consistent, prudent and socially efficient choices, should remain as stable as possible.  But now these latest moves, demanding yet further significant changes to our patent laws, threaten that stability.  And it is in fact systemic instability, from whatever source, that allows the very parasitic behaviors we have termed “troll”-like, to flourish.

It is silly and blindly ahistoric to lump anyone who seeks to license or enforce a patent right, but who does not themselves make a corresponding product, as a “troll.” 

Read the whole thing here. Mr. Sobon’s essay reflects similar concerns expressed by Commissioner Joshua Wright this past April on the Federal Trade Commission’s investigation of what the FTC identifies as “patent assertion entities.”

If we’ve learned anything from the pending IRS scandal, it’s that bureaucrats matter.  Senate Minority Leader Mitch McConnell apparently thinks so.  According to a recent National Review article, McConnell, unlike most minority leaders, has put a great deal of effort into recommending highly qualified individuals for spots on the more than 100 bipartisan agencies and commissions in the federal bureaucracy.  He views his role in recommending appointees as a way to combat regulatory overreach and equip a “farm team” that will be poised to take over the reins of agencies the next time there’s a Republican in the White House.

The article reports that while most minority leaders have made recommendations to reward patronage and keep party operatives happy, McConnell acts more systematically.  His adviser charged with identifying potential nominees looks at five criteria:

First, [a]re the nominees competent in the subject matter? Second, [a]re they philosophically compatible with Senator McConnell? Third, d[o] they possess high character and integrity? Fourth, [a]re they tough? Fifth, [a]re they team players?

In light of these criteria, it’s not surprising that one of the McConnell recommendations highlighted in the article is TOTM co-founder, now FTC Commissioner, Josh Wright.  As the article observes (correctly, IMHO), Wright is “widely considered his generation’s greatest mind on antitrust law.”

Of course, that doesn’t mean Wright’s always right.  More about that to come….

After two years of nagging and increasingly worse hip and leg pain, I learned last August (at age forty) that I have a congenital hip deformity and need to have both hips replaced.  In planning for this surgery, I’ve witnessed first-hand a problem that is driving American health care costs through the roof and is exacerbated by the Affordable Care Act (ACA).  Allow me tell you a little about my recent health care decision-making, the difficulty it exemplifies, and how the ACA squandered an opportunity to make things better.

The first decision I confronted after my diagnosis was when to have surgery.  Because I’m a teacher, the timing of my diagnosis—three days before fall classes were to begin—was most inconvenient.  I knew I could have surgery in early December and be recovered enough to begin the spring semester in mid-January, but that seemed like a lot of hassle.  I ultimately decided to hold off on my surgery until this summer and treat the pain with cortisone injections (of which I’ve now had seven).

In addition to having to decide when to have surgery, I’ve had to select a procedure and decide on a surgeon.  Because I’m young and active, one doctor recommended hip resurfacing, a procedure in which the femoral head is not removed but is instead shaved down and capped with chrome.  Another, stressing problems that may arise from the metal-on-metal aspect of hip resurfacing, recommended a total hip replacement.  I decided to follow his advice.

In researching physicians (which involved several costly office visits), I paid close attention to how different surgeons do things.  Most utilize the traditional posterior approach and access the hip joint from behind, cutting through the buttocks.  In recent years, a minority have switched to an anterior approach in which the incision is on the front of the pelvic area and no muscle is cut.  That approach results in a faster recovery and less risk of dislocation, but it requires a unique table and a surgeon who has received specialized training. 

Surgeons also differ on what brand of artificial joints they use (some are better than others), whether they use stems that are cemented within the femur (uncemented stems become fixed as the bone grows into them), what size femoral heads they employ (bigger heads tend to be more stable, at least to a point), the amount of time they keep patients in the hospital (some send patients home the same day of the surgery, others keep them in the hospital for a few days of rehab), and whether they will replace both hips at once.  Not surprisingly, surgeons’ views on all these matters were quite important to me as I made my choice of doctor.    

In the end, then, I’ve had to decide:

  • When to have this surgery (December or June);
  • How many rounds of cortisone injections to get (they become less effective);
  • Which procedure to have (hip resurfacing or a total hip replacement);
  • Whether to go with a posterior or anterior approach;
  • Which components to utilize (cemented or uncemented stems, larger or smaller femoral heads, which manufacturer)
  • How long to stay in the hospital; and
  • Whether to schedule two surgeries or have both hips replaced at once.

The amazing—and disturbing—thing is that I’ve made all these decisions without ever, a single time, considering the relative cost of the options before me.  Cortisone injections (which, according to my latest insurance statement, cost $790 a pop) have been effectively “free” for me ever since I met the measly annual deductible on my health insurance.  From my perspective, the only cost of another round has been the pain and inconvenience of getting the injections.  In deciding on procedures (resurfacing vs. replacement), approaches (anterior vs. posterior), components (cemented/uncemented, larger or smaller head, brand), surgeons, hospitals, length of hospital stay, and whether to do both hips at once, the price of different options has never been mentioned.  Indeed, I’m nearly certain the doctors I saw couldn’t have quoted me any kind of a price had I requested one.  But, of course, I never requested pricing information because I didn’t care about relative prices.  I didn’t care about relative prices because I have an insurance policy that will pay for whatever I select.  And the various providers I’ve been considering—doctors, hospitals, and equipment manufacturers—know that I’m not considering price in making this decision and am thus unlikely to be swayed by a discount.  They don’t compete on price because doing so won’t win them any business.

My experience exemplifies the problem inherent in any system of third-party health insurance:  The people making consumption decisions are paying with other people’s money, so they have little incentive to shop on price, and providers, aware of that fact, have little incentive to lower their prices in an attempt to win business. 

While the problem is to some degree intractable, it’s been exacerbated by generous health insurance policies that have transformed true “insurance” (protection against catastrophic and unforeseeable risks) into what is essentially pre-paid health care (i.e., coverage for even foreseeable and minor expenses like check-ups and antibiotics for strep throat).  As an increasing number of foreseeable and cheap services and products are covered by insurance—so that the person making the consumption decision doesn’t bear the cost of her choice—prices will rise.  Why, for example, would a doctor lower or constrain her charge for an annual check-up when she knows doing so won’t win her any additional business? 

Unfortunately, the Affordable Care Act not only failed to make a simple change that could have helped mitigate this problem, it also imposed mandates that will make the situation worse.

A Sin of Omission: Failure to Fix the Tax Code’s Perverse Encouragement of Overly Generous Insurance Policies

As explained above, consumers’ incentive to ignore (and providers’ consequent disincentive to compete on) the prices of medical services grows as insurance becomes more and more generous. When everything is covered, a consumer won’t give a hoot about price, and neither will the providers competing for the consumer’s business. The system works best, then, if insurance—at least for lots of folks—is somewhat “stingy” and requires insureds to make some significant out-of-pocket expenditures. If there’s a substantial group of consumers out there whose insurance covers only unforeseeable and catastrophic events, competition for their business on foreseeable and minor expenses will end up lowering health care costs for all. It’s crucial, then, that there be a substantial number of insureds with stingy insurance (i.e., high deductibles and co-pays, significant coverage limitations) and an incentive to shop on price.

Unfortunately, the federal tax code discourages this type of health insurance. Under current law, employer contributions to an employee’s health insurance, but not individuals’ own expenditures on such insurance, are not taxed. This creates an incentive for employers to replace salary, upon which their employees are taxed, with more generous health insurance benefits (i.e., low deductibles, low copayments, lots of costly coverages), which are tax-advantaged. Those generous benefits, in turn, discourage both price competition and thoughtful decisions about health care consumption.

That the tax code perversely encourages overly generous insurance policies is hardly controversial. Indeed, a National Public Radio survey of liberal and conservative economists recently identified eliminating the deductibility of employer contributions to health insurance as one of six policy proposals “that have broad agreement, at least among economists.” As the diverse group of economists explained, the fact that “[n]either employees nor employers pay taxes on workplace health insurance benefits … encourages fancier insurance coverage, driving up usage and, therefore, health costs overall.” Even ACA architect Christina Romer (former Chair of President Obama’s Council of Economic Advisers) recently argued that overly generous insurance plans “lead families to be less vigilant consumers of health care.”

So why didn’t ACA proponents, who know the terrible damage wrought by the tax code’s treatment of employer-provided health benefits include a fix to the problem in the ACA? In a word, politics. In the 2008 campaign, John McCain proposed to eliminate the tax deductibility of employer-provided health benefits so that employer-provided and individually purchased insurance policies would receive equivalent tax treatment. He then proposed to provide refundable tax credits for health insurance purchases. By eliminating the incentive for employers to pay (and employees to demand) a greater proportion of worker compensation in the form of tax-free insurance benefits, the McCain plan would have encouraged individuals to buy cheaper but stingier insurance policies – precisely the sorts of policies that both mitigate the moral hazard problem inherent in any system of third-party health insurance and encourage health care providers to engage in price competition. Unfortunately, McCain’s plan was easy to construe as a “tax increase,” and, in a startlingly disingenuous line of attack, then-candidate Obama went there. He launched television ads accusing McCain of proposing to raise taxes, and he gave lots of speeches where he said things like this:

I can make a firm pledge: under my plan, no family making less than $250,000 will see their taxes increase – not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes. My opponent can’t make that pledge, and here’s why: for the first time in American history, he wants to tax your health benefits. Apparently, Senator McCain doesn’t think it’s enough that your health premiums have doubled, he thinks you should have to pay taxes on them too. That’s a $3.6 trillion tax increase on middle class families. That will eventually leave tens of millions of you paying higher taxes. That’s his idea of change.

President Obama, of course, failed to abide by his “firm pledge.” But far more importantly, his strong and misleading rhetoric against McCain’s plan to level the playing field between employer-provided and individually purchased health insurance policies made it impossible, as a political matter, to make the change economists of all stripes believe would help lower health care costs. As Bob Woodward observed in another context, Mr. Obama’s politics carry a price. Sadly, we’re the ones who pay it.

Two Sins of Commission

In addition to squandering an opportunity to enhance price competition among health care providers, the ACA, when fully implemented, will dampen the nascent price competition that is just beginning to rein in medical inflation and destroy price competition on preventive medical services and products.

Reducing Existing Price Competition by Impairing the HSA/High-Deductible Policy Option. In recent years, the rate of medical inflation has slowed significantly, leveling off at about 3.9%, substantially below the 6.2 to 9.7% of most of the 2000s. Not surprisingly, ACA proponents attribute this decrease to the Act. But that’s implausible given that (1) the bulk of the ACA hasn’t yet been implemented, and (2) the slowdown in medical inflation began around 2002 and the rate had substantially moderated by 2005, well before the Act was passed. The sluggish economy is undoubtedly responsible for some of the slowdown in health care inflation, but macroeconomic woes can’t explain the pre-recession reduction.

So what else is going on? One thing is that a drastically increased number of health care consumers are now insured under high-deductible health plans (HDHPs), typically coupled with Health Savings Accounts (HSAs) in which insureds may sock away money tax-free for meeting deductibles and making minor health care expenditures. From 2005-2012, the number of Americans covered by these plans jumped from one million to 13.5 million. Consumers who are so insured are far more price sensitive, and providers, courting their business, are more likely to compete on price. Indeed, a recent Rand study estimates that families using these health care plans cut health care spending by a whopping 21%. It seems likely, then, that “stingier” insurance has played a significant role in reducing medical inflation. That’s the judgment of Harvard health care economist Michael Chernew, who recently wrote that “[r]ising out-of-pocket payments appear to have played a major role in this decline [in medical inflation], accounting for approximately 20% of the observed slowdown.”

Unfortunately, the ACA threatens to derail the HDHP/HSA revolution. The threat comes from two of the Act’s requirements. First, the statute requires that qualifying (“bronze” level) policies have an “actuarial value” of 60%, meaning that the policy must cover at least 60% of an insured’s medical expenses. That’s a problem for any high-deductible policy coupled with an HSA because, by definition, the portion of medical payments made out of the HSA are not made under the policy sold by the insurer. In a recent guidance bulletin, the Department of Health and Human Services announced that payments made from employer contributions to HSAs would count as insurance payments, but when consumers spend HSA money they contributed themselves, those payments won’t count toward the proportion of medical payments from insurance—even though the insureds are spending money they would have spent on insurance premiums had they purchased policies with lower deductibles. Because a significant proportion of medical payments made by an insured with a high-deductible policy and HSA won’t count toward the minimum 60% actuarial value, insurers will have to raise payments made under the policy by lowering the deductible and/or covering more services. This will both raise the price of the policy, making the HDHP/HSA option less desirable to insureds, and destroy the social value of the HDHP/HSA approach—i.e., the more thoughtful consumption decisions and enhanced price competition that result when individuals are paying for medical care with their own money.

The ACA’s “80/20 rule” also promises to impair the HDHP/HSA model. Under that rule, an insurer must spend at least 80% of collected premiums on health care reimbursements or refund the difference to its insureds. Because high-deductible health plans collect smaller premiums but face fixed administrative costs, they are particularly likely to run afoul of this rule. Consider this example from Robert Bloink and William Byrnes:

[I]f an insurance plan collects $500,000 a month in insurance premiums in Florida and the corresponding administrative costs are $100,000, then $400,000 a month—or 80 percent—of the premiums are paid in benefits and the plan remains within the limits of the 80/20 rule. A HDHP that collects monthly premiums of, say, $300,000 in Florida with the same administrative costs will violate the 80/20 rule because the administrative costs represent more than 20 percent of the $300,000 in premiums collected within the state. The insurer will then be required to refund the difference to Florida policyholders, eliminating much of the incentive for offering low premiums in the first place.

Thus, the ACA, by reducing the attractiveness of the successful HDHP/HSA model, impairs the very development that is most likely to reduce medical inflation in the long run.

Decimating Price Competition on Preventive Measures.  One of the most controversial provisions of the ACA is the requirement that insurers fully cover all preventive measures. The controversy has centered on HHS’s directive that contraception, including the so-called morning after pill, be included in employer-provided coverage. Employers who oppose contraception on religious grounds maintain that HHS’s requirement violates their constitutionally protected right to exercise their religion freely, and I agree. But there’s another huge problem with the ACA’s mandate: it will greatly dampen price competition among providers of preventive services and products, thereby driving up their cost.

If consumers pay nothing for a preventive service regardless of its price, they have little incentive to select relatively cost-effective services, and providers therefore have little incentive to compete on price. If a woman’s birth control is, from her perspective, “free,” then why would she shop around? And if no one’s shopping around, why would contraceptive manufacturers lower or constrain their prices?

ACA proponents insist that the adverse effect of eliminating price competition on preventive measures will be offset by down-the-road cost reductions resulting from better preventive care. But that seems unlikely. Insurers already have an incentive to adopt an optimal reimbursement policy that covers preventive measures when doing so lowers total expected costs. Their scads of actuaries spend all day trying to strike a cost-minimizing balance. The mere fact that a service may lower future costs, then, doesn’t mean it should be fully covered by insurance.

Automobile insurers understand this principle. As John Cochrane observes, they don’t raise premiums slightly and cover routine oil changes—even though regular oil changes prevent higher costs down the road—because they know that insurance coverage would destroy price competition among mechanics and drive up the price of oil changes. By the same token, the ACA’s mandate that insurers fully cover all preventive health services is sure to increase the price of those services in the future.

Conclusion

My recent hip saga has really opened my eyes about the way health care consumption decisions are made. If I had a little more skin the game, I probably would have made some different decisions. I almost certainly wouldn’t have incurred charges of $5,530 ($790 * 7) for nine months of pain relief. I probably would have dealt with the hassle of a “hectic” holiday season and had surgery in December, saving thousands of dollars in fees for palliative care. I might have made different decisions about procedures, doctors, hospitals, cities, components, and whether to do both hips at once—though I really don’t know, since I have absolutely no idea how the relative costs of all these options differ.

One thing I do know, though: Separating the consumer from the price signal is a sure-fire way to waste resources.  The sad thing is that policy makers were beginning to understand that problem and some practical ways to mitigate it. The HDHP/HAS revolution was generating improvements and shedding light on how to move forward.

Then the Affordable Care Act happened.

What a tragedy.

Ezekiel Emanuel, Rahm’s brother and former health care adviser to President Obama, acknowledges in today’s Wall Street Journal that adverse selection may prove to be a “bump in the road” in the implementation of the Affordable Care Act (ACA).  But never you mind.  He’s got solutions.  And, as usual, they all come down to messaging.

Emanuel describes the ACA’s adverse selection problem in what are, for this Administration and its surrogates, remarkably frank terms:

Here is the specific problem: Insurance companies worry that young people, especially young men, already think they are invincible, and they are bewildered about the health-care reform in general and exchanges in particular. They may tune out, forego purchasing health insurance and opt to pay a penalty instead when their taxes come due.

The consequence would be a disproportionate number of older and sicker people purchasing insurance, which will raise insurance premiums and, in turn, discourage more people from enrolling. This reluctance to enroll would damage a key aspect of reform.

Insurance companies are spooked by this possibility, so they are already raising premiums to protect themselves from potential losses. Yet this step can help create the very problem that they are trying to avoid. If premiums are high—or even just perceived to be high—young people will be more likely to avoid buying insurance, which could start the negative, downward spiral of exchanges full of the sick and elderly with not enough healthy people paying premiums.

Of course, Emanuel leaves out an important part of the story: the fact that the ACA itself encourages young, healthy people (the “young invincibles,” he calls them) to forego buying health insurance.  The statute does so by mandating that health insurance be sold on a “guaranteed issue” basis (meaning that insurance companies can’t deny coverage to people who waited to buy it until they became sick) and at prices based on “community rating” (meaning that those who are sick or susceptible to sickness can’t be charged more than the healthy).  Taken together, these provisions largely eliminate the adverse personal consequences of waiting to buy health insurance until you need medical treatment.  (You can’t be denied coverage or charged a higher premium reflecting your illness.)  They thereby decimate the incentive for young, healthy people to buy health insurance until they need it.  And since the law doesn’t (and can’t, according to the Supreme Court) require young, healthy people to carry insurance, many are likely to forego buying coverage in favor of paying a small “tax” — $95 in 2014, as opposed to the $2,480 out-of-pocket cost for an individual policy bought on a subsidized exchange by a 26 year-old earning $30,000.  As I have argued on this blog and elsewhere, the ACA is likely to generate a devastating spiral of adverse selection as the “young invincibles” drop out of the pool of insureds, causing premiums for the covered population to rise, encouraging even more of the marginally healthy to exit the risk pool, causing premiums to rise even further, etc., etc.

But don’t you worry.  Dr. Emanuel’s got it figured out.  He explains:

Fortunately, there are solutions [to this ACA-induced adverse selection problem]. First, young people believe in President Obama. They overwhelmingly voted for him. He won by a 23% margin among voters 18-29—just the people who need to enroll. The president connects with young people, too, so he needs to use that bond and get out there to convince them to sign up for health insurance to help this central part of his legacy. Every commencement address by an administration official should encourage young graduates to get health insurance.

Second, we need to make clear as a society that buying insurance is part of individual responsibility. If you don’t have insurance and you need to go to the emergency room or unexpectedly get diagnosed with cancer, you are free- riding on others. Insured Americans will have to pay more to hospitals and doctors to make up for your nonpayment. The social norm of individual responsibility must be equated with purchasing health insurance.

Finally, and most important, we should adopt some of Massachusetts’ practices. When state officials in 2006-2007 were rolling out their exchange—called the Massachusetts Connector—they mounted a sustained campaign to encourage enrollment by young people. One aspect of the campaign focused in particular on young men, even heavily promoting the new exchange on TV during Red Sox games and hosting an annual “Health Connector Day” at Fenway Park.

So we’re going to lick this pernicious adverse selection problem by combining President Obama’s legendary star power with a dollop of good old fashioned shaming and some targeted advertising during baseball games?  One is reminded of Homeland Security Secretary Tom Ridge’s 2003 statement that Americans should use duct tape to protect themselves from chemical weapons attacks.  But this is really worse.  The chance of a chemical weapons attack in 2003 was pretty small.  Insurance premiums’ rising as a result of ACA-inspired adverse selection, by contrast, is a near certainty. Let’s make sure we keep the President and HHS Secretary Sebelius on that commencement address circuit!

Earlier this month, Representatives Peter DeFazio and Jason Chaffetz picked up the gauntlet from President Obama’s comments on February 14 at a Google-sponsored Internet Q&A on Google+ that “our efforts at patent reform only went about halfway to where we need to go” and that he would like “to see if we can build some additional consensus on smarter patent laws.” So, Reps. DeFazio and Chaffetz introduced on March 1 the Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act, which creates a “losing plaintiff patent-owner pays” litigation system for a single type of patent owner—patent licensing companies that purchase and license patents in the marketplace (and who sue infringers when infringers refuse their requests to license). To Google, to Representative DeFazio, and to others, these patent licensing companies are “patent trolls” who are destroyers of all things good—and the SHIELD Act will save us all from these dastardly “trolls” (is a troll anything but dastardly?).

As I and other scholars have pointed out, the “patent troll” moniker is really just a rhetorical epithet that lacks even an agreed-upon definition.  The term is used loosely enough that it sometimes covers and sometimes excludes universities, Thomas Edison, Elias Howe (the inventor of the lockstitch in 1843), Charles Goodyear (the inventor of vulcanized rubber in 1839), and even companies like IBM.  How can we be expected to have a reasonable discussion about patent policy when our basic terms of public discourse shift in meaning from blog to blog, article to article, speaker to speaker?  The same is true of the new term, “Patent Assertion Entities,” which sounds more neutral, but has the same problem in that it also lacks any objective definition or usage.

Setting aside this basic problem of terminology for the moment, the SHIELD Act is anything but a “smarter patent law” (to quote President Obama). Some patent scholars, like Michael Risch, have begun to point out some of the serious problems with the SHIELD Act, such as its selectively discriminatory treatment of certain types of patent-owners.  Moreover, as Professor Risch ably identifies, this legislation was so cleverly drafted to cover only a limited set of a specific type of patent-owner that it ended up being too clever. Unlike the previous version introduced last year, the 2013 SHIELD Act does not even apply to the flavor-of-the-day outrage over patent licensing companies—the owner of the podcast patent. (Although you wouldn’t know this if you read the supporters of the SHIELD Act like the EFF who falsely claim that this law will stop patent-owners like the podcast patent-owning company.)

There are many things wrong with the SHIELD Act, but one thing that I want to highlight here is that it based on a falsehood: the oft-repeated claim that two Boston University researchers have proven in a study that “patent troll suits cost American technology companies over $29 billion in 2011 alone.”  This is what Rep. DeFazio said when he introduced the SHIELD Act on March 1. This claim was repeated yesterday by House Members during a hearing on “Abusive Patent Litigation.” The claim that patent licensing companies cost American tech companies $29 billion in a single year (2011) has become gospel since this study, The Direct Costs from NPE Disputes, was released last summer on the Internet. (Another name of patent licensing companies is “Non Practicing Entity” or “NPE.”)  A Google search of “patent troll 29 billion” produces 191,000 hits. A Google search of “NPE 29 billion” produces 605,000 hits. Such is the making of conventional wisdom.

The problem with conventional wisdom is that it is usually incorrect, and the study that produced the claim of “$29 billion imposed by patent trolls” is no different. The $29 billion cost study is deeply and fundamentally flawed, as explained by two noted professors, David Schwartz and Jay Kesan, who are also highly regarded for their empirical and economic work in patent law.  In their essay, Analyzing the Role of Non-Practicing Entities in the Patent System, also released late last summer, they detailed at great length serious methodological and substantive flaws in The Direct Costs from NPE Disputes. Unfortunately, the Schwartz and Kesan essay has gone virtually unnoticed in the patent policy debates, while the $29 billion cost claim has through repetition become truth.

In the hope that at least a few more people might discover the Schwartz and Kesan essay, I will briefly summarize some of their concerns about the study that produced the $29 billion cost figure.  This is not merely an academic exercise.  Since Rep. DeFazio explicitly relied on the $29 billion cost claim to justify the SHIELD Act, and he and others keep repeating it, it’s important to know if it is true, because it’s being used to drive proposed legislation in the real world.  If patent legislation is supposed to secure innovation, then it behooves us to know if this legislation is based on actual facts. Yet, as Schwartz and Kesan explain in their essay, the $29 billion cost claim is based on a study that is fundamentally flawed in both substance and methodology.

In terms of its methodological flaws, the study supporting the $29 billion cost claim employs an incredibly broad definition of “patent troll” that covers almost every person, corporation or university that sues someone for infringing a patent that it is not currently being used to manufacture a product at that moment.  While the meaning of the “patent troll” epithet shifts depending on the commentator, reporter, blogger, or scholar who is using it, one would be extremely hard pressed to find anyone embracing this expansive usage in patent scholarship or similar commentary today.

There are several reasons why the extremely broad definition of “NPE” or “patent troll” in the study is unusual even compared to uses of this term in other commentary or studies. First, and most absurdly, this definition, by necessity, includes every university in the world that sues someone for infringing one of its patents, as universities don’t manufacture goods.  Second, it includes every individual and start-up company who plans to manufacture a patented invention, but is forced to sue an infringer-competitor who thwarted these business plans by its infringing sales in the marketplace.  Third, it includes commercial firms throughout the wide-ranging innovation industries—from high tech to biotech to traditional manufacturing—that have at least one patent among a portfolio of thousands that is not being used at the moment to manufacture a product because it may be “well outside the area in which they make products” and yet they sue infringers of this patent (the quoted language is from the study). So, according to this study, every manufacturer becomes an “NPE” or “patent troll” if it strays too far from what somebody subjectively defines as its rightful “area” of manufacturing. What company is not branded an “NPE” or “patent troll” under this definition, or will necessarily become one in the future given inevitable changes in one’s business plans or commercial activities? This is particularly true for every person or company whose only current opportunity to reap the benefit of their patented invention is to license the technology or to litigate against the infringers who refuse license offers.

So, when almost every possible patent-owning person, university, or corporation is defined as a “NPE” or “patent troll,” why are we surprised that a study that employs this virtually boundless definition concludes that they create $29 billion in litigation costs per year?  The only thing surprising is that the number isn’t even higher!

There are many other methodological flaws in the $29 billion cost study, such as its explicit assumption that patent litigation costs are “too high” without providing any comparative baseline for this conclusion.  What are the costs in other areas of litigation, such as standard commercial litigation, tort claims, or disputes over complex regulations?  We are not told.  What are the historical costs of patent litigation?  We are not told.  On what basis then can we conclude that $29 billion is “too high” or even “too low”?  We’re supposed to be impressed by a number that exists in a vacuum and that lacks any empirical context by which to evaluate it.

The $29 billion cost study also assumes that all litigation transaction costs are deadweight losses, which would mean that the entire U.S. court system is a deadweight loss according to the terms of this study.  Every lawsuit, whether a contract, tort, property, regulatory or constitutional dispute is, according to the assumption of the $29 billion cost study, a deadweight loss.  The entire U.S. court system is an inefficient cost imposed on everyone who uses it.  Really?  That’s an assumption that reduces itself to absurdity—it’s a self-imposed reductio ad absurdum!

In addition to the methodological problems, there are also serious concerns about the trustworthiness and quality of the actual data used to reach the $29 billion claim in the study.  All studies rely on data, and in this case, the $29 billion study used data from a secret survey done by RPX of its customers.  For those who don’t know, RPX’s business model is to defend companies against these so-called “patent trolls.”  So, a company whose business model is predicated on hyping the threat of “patent trolls” does a secret survey of its paying customers, and it is now known that RPX informed its customers in the survey that their answers would be used to lobby for changes in the patent laws.

As every reputable economist or statistician will tell you, such conditions encourage exaggeration and bias in a data sample by motivating participation among those who support changes to the patent law.  Such a problem even has a formal name in economic studies: self-selection bias.  But one doesn’t need to be an economist or statistician to be able to see the problems in relying on the RPX data to conclude that NPEs cost $29 billion per year. As the classic adage goes, “Something is rotten in the state of Denmark.”

Even worse, as I noted above, the RPX survey was confidential.  RPX has continued to invoke “client confidences” in refusing to disclose its actual customer survey or the resulting data, which means that the data underlying the $29 billion claim is completely unknown and unverifiable for anyone who reads the study.  Don’t worry, the researchers have told us in a footnote in the study, they looked at the data and confirmed it is good.  Again, it doesn’t take economic or statistical training to know that something is not right here. Another classic cliché comes to mind at this point: “it’s not the crime, it’s the cover-up.”

In fact, keeping data secret in a published study violates well-established and longstanding norms in all scientific research that data should always be made available for testing and verification by third parties.  No peer-reviewed medical or scientific journal would publish a study based on a secret data set in which the researchers have told us that we should simply trust them that the data is accurate.  Its use of secret data probably explains why the $29 billion study has not yet appeared in a peer-reviewed journal, and, if economics has any claim to being an actual science, this study never will.  If a study does not meet basic scientific standards for verifying data, then why are Reps. DeFazio and Chaffetz relying on it to propose national legislation that directly impacts the patent system and future innovation?  If heads-in-the-clouds academics would know to reject such a study as based on unverifiable, likely biased claptrap, then why are our elected officials embracing it to create real-world legal rules?

And, to continue our running theme of classic clichés, there’s the rub. The more one looks at the actual legal requirements of the SHIELD Act, the more, in the words of Professor Risch, one is left “scratching one’s head” in bewilderment.  The more one looks at the supporting studies and arguments in favor of the SHIELD Act, the more one is left, in the words of Professor Risch, “scratching one’s head.”  The more and more one thinks about the SHIELD Act, the more one realizes what it is—legislation that has been crafted at the behest of the politically powerful (such as an Internet company who can get the President to do a special appearance on its own social media website) to have the government eliminate a smaller, publicly reviled, and less politically-connected group.

In short, people may have legitimate complaints about the ways in which the court system in the U.S. generally has problems.  Commentators and Congresspersons could even consider revising the general legal rules governing patent ligtiation for all plaintiffs and defendants to make the ligitation system work better or more efficiently (by some established metric).   Professor Risch has done exactly this in a recent Wired op-ed.  But it’s time to call a spade a spade: the SHIELD Act is a classic example of rent-seeking, discriminatory legislation.