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The official blog of the National Center for Public Policy Research, covering news, current events and public policy from a conservative, free-market and pro-Constitution perspective.

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Raising taxes on certain foods, drinks does little to fight obesity

In an op-ed in Saturday’s Houston Chronicle, I challenge the claims being used to justify a wave of soda taxes rolling across Latin America. I also explain how this could impact the potential for taxes in the United States.


What do Latin American governments do when they realize they are spending more money than they have? In part, they raise taxes on the poor in the name of fighting obesity by taxing food and beverages. That’s only the beginning of the ugliness.

In April, in a piece for the Daily Caller, I detailed how Mayor Bloomberg’s junk-science food police have gone national. It turns out, though, that they’ve actually gone international. In the Houston Chronicle, I explain what happened:

It started last year in Mexico, where former New York City Mayor Michael Bloomberg spent a controversial $10 million of his own money to influence the outcome of a proposed tax on sugar-sweetened beverages and high-calorie foods. The billionaire’s own advocacy group now admits that the money was used, in part, to fund scientists to produce research that would support the taxes, according to both the Associated Press and the Bloomberg Philanthropies webpage. This type of outcome-oriented research may get the job done in terms of advancing a political agenda, but it won’t address obesity.

In fact, a simple economic reality explains why these tax schemes won’t do any good.

A recent article in the American Journal of Agricultural Economics explains consumer behavior in the face of such taxes. Lead author Chen Zhen explained, “Consumers can simply substitute a taxed high calorie for an untaxed one.” Reduced consumption of certain foods does not necessarily cause a reduction in obesity.

If Michael Bloomberg gets his way, the Latin American soda taxes will be used to justify soda taxes in the United States —even if they don’t reduce obesity.

In fact, Bloomberg food police ally Marion Nestle, food policy and nutrition professor at New York University told Politico last month that, “If the taxes are shown to reduce consumption - and I’m hoping studies are under way - I’d say it’s game over.” The taxes will be adopted across the United States even if the Bloomberg-funded Mexican tax has an impact only on consumption, but not obesity.

The piece continues,

Now, after enactment last year of a peso-per-liter soda tax in Mexico, the fad is spreading to other nations of Latin America. Chilean president Michelle Bachelet is enacting a soda tax as part of a wider set of measures targeting foods she doesn’t want her citizens to eat. So is Argentina, as it teeters on the brink of its second debt default in 13 years. In Brazil, where officials increased taxes on sodas, beer and energy drinks by 19 percent to 23 percent over the past two years, revenue-starved officials sought a further tax hike timed to bilk thirsty soccer fans from around the world. At the last minute, the World Cup taxes were given a time out until the fall.

Clearly, the science to support these taxes as a serious anti-obesity tool hasn’t yet been established, despite Bloomberg’s millions. So why was the tax adopted?

Rather simply, it is Sutton’s Law. The “law” is named after the infamous American bank robber Willie Sutton, who was incorrectly credited with answering a reporter who asked him why he robs banks by saying, “That’s where the money is.”


According to Christopher Wilson, an associate at the Mexico Institute of the Woodrow Wilson International Center for Scholars, “Traditionally, 30 to 40 percent of the budget came from oil exports, and that has been declining. That has made for a strong imperative to increase tax collection, which is extraordinarily low as a portion of GDP, and that is the driving force behind fiscal reform,” Wilson told the magazine, Governing, in reference to the food and soda tax. Mexicans spend money on high-calorie food and soda, so Willie Sutton would have taxed it, too.

The problem is, taxes on sugar-sweetened beverages and so-called “junk-foods” have a disproportionate impact on the poor. To Bloomberg, whom nobody could accuse of being poor, this isn’t a bug, it’s a feature. Since there’s a high-rate of obesity among lower socio-economic groups, a sin tax that hits poor people the hardest is right on target.

But there’s more to it than money. Even proponents of the taxes concede they aren’t a silver bullet. Throughout Latin America, advocates are pushing a full menu of laws an regulations aimed at soda and food. At the top of the food police wish-list is a restriction on the advertising of foods they don’t want people to eat. Instead of following the science, proponents of advertising restrictions attempt to advance their cause in a way that makes Bloomberg’s attempt to purchase science look honorable by comparison. Activists in Canada, the United States and Chile are suggesting that advertising to kids is akin to molesting children.

Assistant Professor at the University of Ottawa Dr. Yoni Freedhoff says it most delicately, “We need to stop allowing the food industry to target our most vulnerable and precious population, our children.” New York’s Meme Roth, founder of “National Action Against Obesity” is less subtle in evoking thoughts of child molestation by referring to food advertising to children as “predatory” and arguing that we shouldn’t let food company executives have a “relationship with our kids.”

But it took the chairman of the Committee on Health of the Chilean Senate to put innuendo aside and make the allegation Freedhoff and Roth were too polite to directly state. Senator Guido Girardi, told La Nacion that (as translated by Google), “Chile has companies that are the pedophiles of the 21st century, because they abuse children by labeling fatty and sugary food as healthy.”

In their zeal to advance an unpopular agenda, it’s the food police who have become the real creeps. Advocates who want to fight obesity have their hearts in the right place. But that shouldn’t free them from being held to legitimate science and common standards of decency. With a little less emotionally manipulative rhetoric and a bit more nonpartisan science, we could come together and address obesity in a constructive way.


The Missouri Legislature Should Override Governor Nixon's E-cigarette Veto

Tobaccocigarettee cigDPCW

Now that the comment period for the Food and Drug Administration’s proposed “deeming regulations” has closed, attention is shifting back to state and local legislative approaches to e-cigarettes. (See our comments to FDA.)

While federal regulations ultimately have supremacy, state and local governments around the country are considering e-cigarette policies such as how to tax them, local usage bans, and bans on sales to minors. Two of these issues are now playing out in a fascinating way in Missouri, where Governor Jay Nixon has vetoed a bill that should be seen as a model for how to properly regulate these products at the state level.

The challenge of how to regulate e-cigarettes at any level of government is about getting the right balance between considerations such as product safety and protecting youth, versus the risk of a regulatory scheme which would have the effect of discouraging adult smokers from switching to these dramatically less harmful  products.

Mitch Zeller, the FDA’s chief tobacco regulator summed up his approach in a recent interview with the Robert Wood Johnson Foundation. He said, 

 … if at the end of the day people are smoking for the nicotine, but dying from the tar, then there’s an opportunity for FDA to come up with what I’ve been calling a comprehensive nicotine regulatory policy that is agency-wide and that is keyed to something that we call the continuum of risk: that there are different nicotine containing and nicotine delivering products that pose different levels of risk to the individual.”

Zeller hit the nail on the head about how to think about reaching the right balance, with the continuum of risk in mind:

 Right now the overwhelming majority of people seeking nicotine are getting it from the deadliest and most toxic delivery system, and that’s the conventional cigarette. But if there is a continuum of risk and there are less harmful ways to get nicotine, and FDA is in the business of regulating virtually all of those products, then I think there’s an extraordinary public health opportunity for the agency to embrace some of these principles and to figure out how to incorporate it into regulatory policies.”

 In Missouri, the legislature codified Zeller’s well-reasoned strategy by banning the sales of e-cigarettes to minors, and, simply enough, defining e-cigarettes as vapor products. Such a definition would have the effect of ensuring that e-cigarettes are not inappropriately taxed and regulated as tobacco products, at least  not without deliberation of the legislature. The bi-partisan bill garnered 127 votes in the house, with only 19 votes in opposition. It was approved 27-4 in the senate.

Yet last month, under pressure from a shrinking number of activist groups who deny the potential public health benefits of e-cigarettes, Governor Jay Nixon vetoed this common-sense approach.

  The governor’s veto message feebly attempted to justify his action, but doesn’t even pass the laugh test. He writes,

First, Missouri law should not limit the regulation of products derived from tobacco that contain a highly addictive chemical and carcinogenic, noxious chemicals. Not unlike traditional tobacco cigarettes, these products may carry significant health risks to users and others through direct and secondhand inhalation in a manner not unlike traditional tobacco cigarettes.” 

It is as if the governor thumbed his nose at the FDA’s Mitch Zeller, who cautioned against this unlimited regulatory approach to e-cigarettes. But Nixon goes further. He awkwardly manages, twice in one sentence, to equate non-combustible tobacco-free e-cigarettes with actual cigarettes. That’s exactly the opposite approach called for by Zeller. 

Governor Nixon’s veto message continues, 

Second, … Senate Bill No. 841 would harm the health of Missourians because it would contravene and undermine more comprehensive proposed federal regulation.”  

Governor Nixon should know better. State law cannot “contravene” federal regulations, even if legislators wanted to. Federal regulations have supremacy. More importantly, the bill passed by the legislature would do nothing to “undermine” proposed federal regulations.  

Let’s put aside the fact that the comment period for the FDA’s proposed rule closed only last week and the agency must review and take into account a reported 81,881 comments, some of which exceed 100 pages, before any final regulation is developed. No state law could contravene or undermine regulations that haven’t been finalized yet. The bottom line is that the governor and the activists who pressured him to veto the bill admit that they want to regulate and tax e-cigarettes like tobacco products such as cigarettes. 

Those moves are not only unsupported by the science, but would violate the very essence of the regulatory approach the FDA seeks to pursue, as Mitch Zeller described it. The FDA recognizes that there is a “continuum of risk: that there are different nicotine containing and nicotine delivering products that pose different levels of risk to the individual.” Those products should be regulated differently. Governor Nixon, however, goes out of his way to equate, rather than differentiate the products.

Ironically, if the governor gets his way and the legislature does not override the veto, minors in Missouri would be permitted to purchase e-cigarettes from unscrupulous sellers. What’s worse, the table would be set to for bureaucrats in the governor’s office to undermine the will of an overwhelming majority of members of both parties in both houses of the legislature, as well as the strategy sought by the FDA, by regulating and taxing e-cigarettes as if they were cigarettes. 

Indeed, if the veto is allowed to stand, it would contravene the very principle central to the FDA’s planned approach to the regulation of e-cigarettes as outlined by Mr. Zeller. 

The legislature should act swiftly to overturn the governor’s misguided veto.  


Project 21’s Kevin Martin on the Violence in Ferguson, Missouri

“There is no justification” for the nightly rioting erupting in Ferguson, Missouri after a police shooting there killed 18-year-old Michael Brown, said Kevin Martin, a member of the Project 21 black leadership network.  On the 8/13/14 edition of “The Rick Amato Show” on the One America News Network, Kevin condemned the violence and praised the “courageous” calls for calm amidst the chaos by Brown’s parents.

Asked about the leftist narrative that American society creates a condition where blacks do not feel they can trust the police, Kevin responded that there are many people reserving judgment because of a lack of information about what happened, but that this cannot justify the actions of “career criminals” who have descended upon Ferguson to cause trouble and commit crimes of opportunity.

Kevin’s interview was cut short by technical problems in the One America studios, so he subsequently provided this additional comment about Brown case and the violence in Ferguson:

I mourn for Michael Brown just as any other parent would when a child is killed under these questionable circumstances and with conflicting accounts.

But I would be remiss if I did not condemn the actions of the looters who have descending upon Ferguson — not seeking justice for Michael Brown or to mourn him, but to spread lawless chaos with selfish intent.  It puts the whole community at risk.

Simply put, how does stealing wheel rims from a local business or looting and burning a QuikTrip market honor the memory of Michael Brown?  I join with the Brown family and others in condemning the lawless violence that has engulfed a community that is already on edge.


Project 21's Arps Dispels Myths About Missouri Riots

Ferguson, Missouri has never been a place of simmering racial animus said Project 21 member Christopher Arps, a resident of the St. Louis area who is familiar with the town now in the national spotlight.  Speaking about the police shooting there that took the life of resident Michael Brown — an action that sparked riots and looting in the majority-black suburb and brought national attention to it — Arps explained that a lot of the problems in Ferguson currently stem from a lack of information and an abuse of a tragic situation by opportunists.

On the 8/12/14 edition of “Real News” on Glenn Beck’s The Blaze TV network, Arps told host Tara Setmayer (also a Project 21 member) that there are “certain areas” in the largely middle-class community where there is a problem with crime and gang activity and where community-police relations are strained as a result.  Ferguson as a whole and the St. Louis area, however, are not places he considers to be plagued by racial problems.

Arps also pointed out that the majority of those arrested for looting and rioting in the wake of the Brown shooting do not appear to be local residents.  This gives credence to the suggestion that most of the mayhem and damage that has occurred in the wake of the shooting is by the hand of outsiders seeking to commit crimes of opportunity.  He added that the situation is made increasingly tense by an overall “lack of information” that allows for idle speculation that has lead to extremist elements portraying the shooting as an execution.


Health Care Odds & Ends: Leaving The ObamaCare Exchanges

1. Down 44%? My former colleague at Investor’s Business Daily, Jed Graham, reports that new evidence on exchange enrollment “could require quite a come-down from those lofty claims” of 8 million enrollees in the ObamaCare exchanges.

Aetna, the nation’s third-largest health insurer, “had 720,000 people sign up for exchange coverage as of May 20, a spokesman confirmed to IBD. At the end of June, it had fewer than 600,000 paying customers. Aetna expects that to fall to ‘just over 500,000’ by the end of the year.”

That would be a drop of 44 percent.  At that rate the ObamaCare exchanges would drop from 8 million down to 4.6 million enrollees.  

Yet not every insurer expects to see such a dramatic drop. “Cigna said that it expects its individual market customers, including more than 100,000 in the exchanges, to ‘move from 300,000 down to 280,000 in that range,” Graham reports.  That’s a drop of 6.7 percent.

But attrition is not the only reason for decline in exchange enrollment…

2. Can They Prove Their Citizenship Status?  Will They Have To?  The Daily Caller reports that the Centers for Medicare and Medicaid Services “sent letters notifying 310,000 customers who have failed to fix errors in their citizenship or immigration data that their coverage will be terminated Sept. 30 if they don’t submit proof by Sept. 5.”  

So, let’s say that half of those, 155,000, are unable to prove citizenship, reducing exchange enrollment from 8 million to 7,845,000.  Then, let’s assume that attrition is at about the halfway point between 44 percent and 6.7 percent, which is about 25 percent.  That would drop enrollment down to about 5.9 million, quite a ways from 8 million.

As for the death spiral, we can’t know what effect this will have since we have no data on the age or health status of those who are leaving the exchange.  However, those who are dropping coverage because they have stopped paying their premium are probably disproportionately young, which is not a good sign for avoid a death spiral. But that’s a rough guess and at this point we can’t know with any confidence.

Final point:  I have my doubts that those 310,000 will have to prove citizenship.  What would prevent President Obama from issuing an executive order giving them a waiver?  The law, of course, but as we have seen that means little to this president.  So don’t be too surprised if, at the end of August, President Obama “finds a way” to let those people stay on the ObamaCare exchanges.


Why I'm Obsessed with Salon's Obsession with Obsession

obsessed lady

I wonder at how often uses certain words, such as "obsession" and "wingnut." Today I looked. 41,900 times for "obsession," 7,830 for "wingnut."

Some of the things we wingnuts are "obsessed" by: the medical device tax, Dinesh D'Souza, exaggerating, Obama phones, school-for-cash (whatever that is), socialism, Kenya (in two ways), food stamps, abortions at 20 weeks, Obama's TelePrompTer (obsessing over which, Salon says, might be "racist"), inflation, national parks, voter fraud, John Kerry's gaffes, austerity, ACORN (Salon says it is unconstitutional to be obsessed by ACORN, so I like to call ACORN a tax), ObamaCare (this is actually true), and repealing ObamaCare, also true, not to mention pending.

We did relax on one issue. Salon said we had an "obsession" with crime last August, but on August 8 of this year it said we had given up Nixon's "obsession" with law and order, which raises the question of whether we ever really were obsessed with it, or Salon just confused us with Nixon. Or maybe Salon just likes publishing big pictures of Nixon. Because, you know, Nixon was a Republican and he tried to use the IRS for political purposes.

I admit to a certain confusion because Salon also says we wingnuts are obsessed with "policing women's sex lives." Law and disorder?

Not that only wingnuts are obsessives. All of America has both a wedding dress "obsession" and a cannabalism "obsession." (Be careful at wedding reception buffets.) We Americans also are obsessed with women's figure skating, because we're obsessed with watching women fall down. America also has a "celebrating moms-to-be" obsession, which started a few months after the wedding dress obsession, and a "missing white women" obsession, which makes sense to the extent that the more women you have around, the more wedding dresses, figure skaters and baby showers you will have. Americans are a very logical people.

SalonObsession081014The U.S. Navy is obsessed with whales, which makes sense: It's the best branch of the military to join if you want to see one. Big Pharma has an "attention" obsession, which was news to me but I wasn't paying attention. Four months before the last presidential election, Salon reported Mitt Romney had an "animal terrorist" obsession, by which Salon meant the Animal Liberation Front, not presidential candidates who have eaten dog meat, though the latter is more likely to be true.

Even the Salon writers have self-confessed obsessions: with swastikas and reading Mormon housewife blogs. I'd make fun of that but I don't know where to start.

Why don't you hear about all this from other parts of the news media? Perhaps the media is distracted by its "parenting Suri Cruise" obsession.

On August 7 Salon ran the headline, "America was built by obsessive compulsives." I first thought that's a compliment to wingnuts and others prone to obsessiveness, but then I reconsidered.

I'm not sure Salon approves of America.


NCPPR's Comments to the FDA Regarding E-Cigarette Regulations

E cigarettes DPC

Today the National Center for Public Policy Research submitted comments to the Food and Drug Administration regarding e-cigarette regulations known as "Deeming Regulations."

When the proposed rule was first published, I told the Associated Press that "the devil will be in the details."

One of those details is the fact that the FDA has stated that it does not believe congress gave the agency authority to set a unique "grandfather date" for E-cigarettes to allow them to come to market without undue regulatory burdens.

I suspect the FDA is receiving thousands of comments, many from smokers who say they've quit smoking cigarettes by using e-cigarettes instead.

The FDA acknowledges that harm reduction benefit of e-cigs. But it says, in the proposed deeming regulations that, the grandfather date it sets in the proposed rule is a problem, at least for industry and the former smokers that rely on that industry. The FDA's grandfather date creates huge regulatory burdens, but it says its hands are tied by Congress.

In my comments, I argue otherwise. I explain why the FDA should use its statutorily granted discretion in setting a grandfather date for e-cigarettes to the effective date of the proposed rule, or, at earliest, as the date the proposed rule was published.

There's a lot of legal terminology here. The bottom line is that if the FDA imposes the rule it drafted, just about all of the e-cigarettes on the market today would eventually have to come off the market because of the huge regulatory burden, and almost all innovation would be stifled. If this happens, smokers who quit smoking using these products have said that they would either buy unregulated products on the market, or simply go back to smoking cigarettes as a result of the FDA's decision.

In the comments submitted today, NCPPR explains that the proposed rule is fundamentally flawed because it misinterprets the statute in concluding that the agency does not have the statutory authority to protect public health by setting the grandfather date for substantial equivalence to a more current date than February 15, 2007.

Here is the full text of the comments:

To: FDA Center for Tobacco Products

RE: FDA, Docket No. FDA-2014-N-0189, Regulatory Information Number (RIN) 0910- AG38

Deeming Tobacco Products To Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Regulations on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products

From: Jeff Stier, Senior Fellow, National Center for Public Policy Research, Director, Risk Analysis Division

Date: August 8, 2014

I am writing on behalf of the Risk Analysis Division of the National Center for Public Policy Research, a conservative think tank.

The FDA has solicited comments on what FDA actions or regulatory approaches, if any, should be taken for proposed deemed tobacco products that are "new tobacco products" under section 910(a)(1) of the FD Act. The act, passed by congress as the Family Smoking Prevention and Tobacco Control Act, became law on June 22, 2009. The law granted the FDA regulatory authority over tobacco products.

In this submission, I will explain why the FDA should use its statutorily granted discretion in setting a grandfather date for e-cigarettes to the effective date of the proposed rule, or, at earliest, as the date the proposed rule was published.

The U.S. District court in Washington, DC has ruled that because the nicotine in e-cigarettes is derived from tobacco, the FDA has the authority to regulate them as tobacco products, even though there is no actual tobacco in them. (Sottera, Inc. v. Food & Drug Admin., 627 F.3d 891 (D.C. Cir. 2010))

However the statute did not require the FDA to regulate e-cigarettes. Instead, the Tobacco Control Act provided the FDA authority to regulate cigarettes, cigarette tobacco, roll-your-own tobacco and smokeless tobacco products. In addition, the statute separately gave the agency the authority to deem other tobacco products as tobacco products under the statute.

Congress required that the agency's implementation of the statute must, "provide new and flexible enforcement authority to ensure that there is effective oversight of the tobacco industry's efforts to develop, introduce, and promote less harmful tobacco products." [Citation]

The FDA would be failing in its statutorily-based mission to protect public health by setting the grandfather date for all newly deemed products to February 15, 2007. Specifically, there's no rational basis for applying the statute's grandfather date for products other than those for which the statute gave the agency immediate regulatory authority. The February 15, 2007 grandfather date applies to products that congress gave FDA direct regulatory authority over. It should be self-evident that the grandfather date in the statute did not apply to products that were not yet deemed as tobacco products. This is true especially regarding a class of products that had no substantially equivalent product on the market and which also have the potential to improve public health. Instead, the statute explicitly provides for flexibility in this regard, with direct language describing the bill's purpose to "to impose appropriate regulatory controls on the tobacco industry." [Citation]

The agency's attempt to incorrectly set the grandfather date for newly deemed e-cigarettes to February 15, 2007 is a failure to exercise its statutorily granted flexible enforcement authority, as well as a failure to implement the statute's call for appropriate regulatory controls. As a result of the agency's misapplication of the statute, the FDA's proposed rule would have the unintended consequence of harming public health by failing to provide effective oversight of industry's effort to develop, introduce, and promote less harmful tobacco products. Ironically, in claiming to implement the statute by adhering to the wrong grandfather date, the agency would be failing to enforce the statute and would harm public health in the process.

The statute sets forth two pathways, or on-ramps, to legally market new tobacco products. The first pathway, substantial equivalence, is the pathway where the grandfather dates comes into effect. In order to be eligible for this on-ramp, the new product must be "substantially equivalent" to a product on the market as of a specific grandfather date. For products already on the market as of the grandfather date, this on-ramp presents the lowest regulatory hurdle to bringing a product to market.

If a product is not substantially equivalent to a product on the market as of the grandfather date, or if it does not meet the other substantial equivalence requirements, the manufacturer must submit a Premarket Tobacco Application. [Citation]

The FDA's Premarket Tobacco Application guidance states that,

"Premarket Tobacco Applications must demonstrate that the new tobacco product is appropriate for the protection of the public health, which will be determined with respect to the risks and benefits to the population as a whole, including users and non-users of tobacco products, and taking into account:

The increased or decreased likelihood that existing users of tobacco products will stop using such products; and

The increased or decreased likelihood that those who do not use tobacco products will start using such products."

Congress intended the substantial equivalence standard to be lower than the premarket tobacco application so that industry would be allowed to make changes to products that did not introduce new health risks. By not developing a rationally grounded grandfather date for e-cigarettes, the deeming regulation runs the risk of stifling innovation of lower risk products that weren't even contemplated by the statute. In the proposed rule, the FDA comes close to acknowledging as much. The proposed rule addresses the concern raised by "industry" (and no doubt, by many e-cigarette consumers who quit smoking cigarettes with the help of these products), that,

"many tobacco products we are proposing to deem that are currently being sold may not be 'grandfathered' tobacco products because many were not commercially marketed or modified until after February 15, 2007. We understand that this may be particularly true in the case of e-cigarettes and similar novel products."

In addition, the FDA directly acknowledges that under the proposed rule's grandfather date, no technology-based products such as e-cigarettes would be permitted to pursue the substantial equivalence pathway available to the more harmful combustible cigarettes.

"Moreover, new products that come on the market in the future would never be grandfathered tobacco products because they would be coming on the market after February 15, 2007." [Citation]

The proposed rule then fails to acknowledge that the statute gave the FDA flexibility to apply the statute in order to protect public health. The rule states,

"We do not believe that we have the authority to alter or amend this grandfathering date, which is set by statute."

Instead, the FDA writes in the proposed rule that,

"Therefore, FDA believes most proposed deemed tobacco products would be considered new tobacco products and would be required to obtain an order from FDA prior to marketing under one of the three pathways listed in section VIII.A.6."

This interpretation is incorrect because the February 15, 2007 grandfather date applies to products that the FDA must regulate under the statute, and not to products that must first be deemed as tobacco products by the agency. To accept the FDA's tortured interpretation of the statute, one would have to believe that congress intended to set a grandfather date in the statute for products that weren't under the FDA's regulatory authority when the statute went into effect.

There is no specific language in the statute which sets a grandfather date for products not yet deemed tobacco products. In fact, the law came into effect in 2009, prior to the 2010 Sottera decision that laid the legal basis for the FDA to attempt to deem e-cigarettes as tobacco products under the statute.

In reality, the statute wisely authorized the FDA to come up with different regulations for newly deemed products. With an eye towards new products not specifically contemplated in the statute, congress granted the FDA "flexibility" to promulgate rules that protect public health. Congress also stated that the purpose of the statute is "to impose appropriate regulatory controls on the tobacco industry," as well as "to promote cessation to reduce disease risk and the social costs associated with tobacco-related diseases."

The agency's failure to exercise this discretion would have the exact opposite effect of the statute's overall goal of protecting public health by unnecessarily forcing e-cigarette manufacturers to pursue the burdensome Premarket Tobacco Application route to the market. This route is the most expensive and time consuming legal pathway to the market. If the FDA does not exercise its discretion with regard to the grandfather date, it would pervert the public health intent of the statute by allowing the substantial equivalence route for cigarettes, the most harmful form of tobacco use, while, by the agency's own admission, forcing less harmful non-combustible products to climb a much steeper on-ramp.

It should be noted that is possible that there were some vapor products on the market as of February 15, 2007, but those products did not appeal to a large number of smokers and continue to evolve significantly so as to present less harm and to be of greater appeal to smokers looking for an alternative to cigarettes. Those products bear no substantial equivalence to the products that are today helping a significant portion of smokers quit smoking.

In his interview with the Robert Wood Johnson Foundation's NewPublicHealth, the director of the FDA's Center for Tobacco Products, Mitch Zeller addresses the need for the flexible application of the authority congress granted the agency, with regard to lower risk, noncombustible products like e-cigarettes.

"The other example is if at the end of the day people are smoking for the nicotine, but dying from the tar, then there's an opportunity for FDA to come up with what I've been calling a comprehensive nicotine regulatory policy that is agency-wide and that is keyed to something that we call the continuum of risk: that there are different nicotine containing and nicotine delivering products that pose different levels of risk to the individual.

Right now the overwhelming majority of people seeking nicotine are getting it from the deadliest and most toxic delivery system, and that's the conventional cigarette. But if there is a continuum of risk and there are less harmful ways to get nicotine, and FDA is in the business of regulating virtually all of those products, then I think there's an extraordinary public health opportunity for the agency to embrace some of these principles and to figure out how to incorporate it into regulatory policies." [Citation]

One meaningful and concrete way the FDA could incorporate these principles of a continuum of risk is to use the discretion granted in the statute by setting a more current grandfather date which would include the products on the market today which are achieving the public-health results Mr. Zeller has pointed to in his numerous discussions of a comprehensive nicotine regulatory policy and a continuum of risk.

The unfounded claim in the proposed rule that suggests congress did not have the forethought to grant the agency flexibility in applying the statute, especially with regard to a grandfather date for products for which the agency was not granted immediate authority to regulate, would unnecessarily tie the agency's hands as it seeks to implement an agency-wide science-based nicotine regulatory policy that is keyed to the continuum of risk.

A February 15, 2007 grandfather date would also inadvertently give an advantage to cigarettes, by allowing them a substantial equivalence pathway, and denying that same pathway to an entire class of products that the FDA itself recognizes may present an extraordinary public health opportunity.


Obama Foster Plan for Illegal Kids “Ripe for Abuse”

Current plans to put many of the illegal immigrant children now being held by the government into foster care is a strategy that is “ripe for abuse.”  In an discussion with host Rick Amato on the One America News Network, Project 21 co-chairman Cherylyn Harley LeBon noted an overwhelming number of young illegals here in the United States “can’t speak English” and are “not familiar with American culture whatsoever,” and they risk being lost or abused by a foster care system that cannot be trusted to run efficiently even without having to deal with the recent influx of thousands of children coming here alone from Latin America.

In response to Amato’s story about how one of the producers of his show found information about becoming a foster parent that claimed one could become qualified in 45 days and receive $6,000 a month for fostering a child, Cherylyn said there is an inherent risk of “draw[ing] in a certain type of person doing it just for the money” and that people may lack necessary parenting skills or harbor ill intent for the welfare of a foster child.  This problem, she said, must be tackled.

One part of the solution to this problem that Cherylyn suggested on the 8/7/14 edition of “The Rick Amato Show” was for the social workers who must deal with this problem to “force the [Obama] Administration to answer those questions” about how the federal government intends to transition this wave of children safely and effectively.


Barney Frank: We Know What's Best For You

Last Friday the Huffington Post reported that former Democratic Congressman Barney Frank said the Obama Administration “lied to people” when it claimed that you could keep your health insurance plan if you liked it.

While that got most of the attention, what was more insightful was Frank’s advice on how President Obama should have reacted when millions of people were losing their insurance plans late last year:

“He should have said, ‘Look, in some cases the health care plans that you’ve got are really inadequate, and in your own interests, we’re going to change them.’ … But that’s not what he said.”

That statement reflects the attitude of what economist Thomas Sowell calls “The Anointed,” intellectuals who believe they have “a mission to lead others in one way or another toward better lives.”  

It’s axiomatic among politicians and others on the left they know what is in the best interest of other people, and it is their responsiblity to use government to force it on them if necessary.  Of course, other people might have a better sense of what their own interests are since they are the ones who pay the cost if they make decisions about their interests that are wrong. That, though, never occurs to the likes of Frank.

It comes as small relief to know that Frank is no longer in Congress where he can indulge his sense of superiority by passing laws that force the rest of us to do as he see fits.  Obviously, Congress and the Obama Administration are filled with like-minded people.


Federal Reserve Policy: Robbing the Poor to Feed the Rich

Note: This post was written by NCPPR’s intern, Scott Alford.

Income inequality is poised to be the defining issue of America’s next few election cycles. Yet, few political leaders understand that one of the most influential sources of inequality originate from the contradictory central planning at the Federal Reserve. Bad Federal Reserve policies, in the long run, make the value of our money worth less and lower the standard of living for middle and lower class families.

Since its inception as the United States monetary monopoly over a hundred years ago, the Federal Reserve Banking system has attempted to stabilize the American economy through two main goals: maximizing employment and maintaining price stability. However, the means to these goals are often mutually exclusive. Maximum employment requires artificially low interest rates while price stability require modest market interest rates. But with the Great Recession of 2008, political incentives pushed the Federal Reserve Chairman Ben Bernanke toward valuing maximizing employment over price stability. Once again, economic prosperity was compromised for political expediency. 

While low interest rate policies do stimulate employment, they also raise the cost of living and devalue the wages of the middle class and poor.  To create stimulus in the economy, the Federal Reserve provides low interest rates to incentivize large banks to borrow credit which, in turn, encourages local banks to loan out more money.

Typically, creditworthy citizens—many of them wealthy—are the first to borrow this money and with it they purchase goods and services at the lower pre-inflation price.  However, by putting more money into circulation, they have “proceeded to bid up the prices of assets and resources, while everyone else has watched their purchasing power decline.”

The lower and middle classes will be the victims of the Federal Reserve’s low interest rates. These classes now have to bear the greater cost of goods like milk and bread and cell phones. This harms the poor the most for they are the ones who can least afford higher prices.  Furthermore, the wages of the middle and lower classes seldom increase fast enough to cover the increase in prices. The end result is that the Federal Reserve allows the wealthy to amass wealth at lower prices while stealing value from lower classes.

Hedge fund founder Mark Spitznagel explained the Feds “coercive redistribution has been a far more egregious source of disparity than the president’s presumption” of tax unfairness. If politicians truly desire a more just and prosperous economic system, the government should address the Federal Reserve’s low interest rates. Without reform, the Federal Reserve low interest rate policies will continue to exacerbate income equality while harming economic prosperity.


ObamaCare: Rewarding Failure Again

Apparently, the reward for failure at the Massachusetts exchange isn’t as good as the reward for failure at the Maryland exchange.  It’s better!

From the editorial page of the Fitchburg, Massachusetts Sentinel & Enterprise:

The latest example of government’s Mouseketeers Club mentality comes at the shaky Massachusetts Health Connector.

Recently, MHC executive director Jean Yang doled out raises of $10,000 or more to 11 of the agency’s 53 workers. The increases ranged from 15 percent to 24 percent, with another 3 percent on the way in the fiscal 2015 budget if the agency meets goals to successfully relaunch its balky website by November.

Yang said the salary increases are needed to retain valued employees and improve performance going forward. This action comes after the embarrassing debacle associated with the state’s rollout of its Obamacare website, which has cost taxpayers nearly $1 million in computer fixes and lawsuits and still isn’t resolved.

Massachusetts was one of the six worst ObamaCare exchanges in the nation.  The Bay State had a fairly successful exchange prior to ObamaCare, but “when it came time to rebuild the state’s existing exchange to meet Obamacare’s standards, the effort failed completely,” according to Peter Suderman at Reason.  Suderman continued, “Massachusetts hired CGI, the same contractor tasked with building the federal exchange system, to upgrade its exchange to the real-time, online application processing called for by Obamacare. But as with the federal system, technical glitches plagued the rollout from day one. By January, the state lagged further behind its original enrollment target than any other state. Just 5,428 people signed up for coverage during the first three months  of enrollment—about 0.8 percent of the state’s first year goal.”

Yang’s statement shows liberal double-think at its finest.  The raises are needed to keep valued employees.  But why are they valued if they screwed up the exchange?  And how does giving a bonus after the exchange disaster improve performance going forward?  You see, the way it works in reality is you get a bonus for a job well done—the boss is sending you the pretty simple message, “This is what you get for being productive.  And you’ll get more if you are productive in the future.”  Yang, on the other hand, seems to be saying, “Even though you screwed up, we’ll give this bonus now to encourage you to do better in the future.”  It can’t be too long before the employees there realize, “Hey, we got a bonus despite our performance!” Chances are these bonuses are written into the law and there is no way Yang can withhold them.  Not that she’d be inclined to do so anyway.

Yang wouldn’t have anywhere near the leeway to indulge such nonsense if she was in the private sector.  She’d have to worry that her customers would take their business elsewhere. But she has the luxury of knowing that the taxpayers will be providing the money year after year.  In fact, just about everyone in government has that luxury.

That’s why failure can be rewarded—and why government-run health care won’t work.


ObamaCare: Rewarding Failure

So, what happens when you botch an ObamaCare exchange?  You get a very soft landing.  From the Baltimore Sun:

Dr. Joshua M. Sharfstein said Wednesday he plans to leave his post as secretary of the state Department of Health and Mental Hygiene, where he drew criticism for the botched rollout of the state’s health insurance exchange website.

Sharfstein, a trained pediatrician who has spent his career in public service, will join the Johns Hopkins Bloomberg School of Public Health as an associate dean in January as the O’Malley administration ends.

As you probably know, Maryland’s Health Benefit Exchange was one of the worst in the nation, second perhaps only to Oregon.  And what price does Sharfstein pay for getting things wrong?  None, other than possibly a few sleepless nights in the last year.

In fact, he’s getting a cushy academic job that will come with a big salary and lots of perks by his dint of having been Secretary of the Dept. of Health.  He’s reaping a big pay day despite his failure.

This is a big reason why government-run health won’t work and, eventually, is headed for disaster.  The people who run it pay no cost for being wrong and, if they hold a high enough position in the government, when they leave they will be rewarded no matter how badly they failed.  As Thomas Sowell says, “It is hard to imagine a more stupid or more dangerous way of making decisions.”


ObamaCare's $11 Billion Bailout (At Least)

That the Obama Administration has been a bevy of crony capitalism is well established, and ObamaCare is no exception.  A recent report from the House Committee on Government Oversight and Reform exposes the rather cozy relationship between various White House advisors, especially uber-advisor Valerie Jarrett, and the CEOs of large insurance companies and how both sides benefitted from expanding the bailout for insurers.  For a good summary on that, go here.

I just want to take a moment to examine how much the insurance industry bailout will cost taxpayers this year. There are three bailout provisions in ObamaCare: the risk corridors, risk adjustments, and reinsurance.

ObamaCare’s risk corridors are a temporary program that is supposed to help insurers mitigate the enormous amount of risk inherent in the ObamaCare exchanges.  Under this program, an insurer in the exchange whose costs make a profit share some of those profits with insurers who incur losses. The problem occurs if there are not enough insurers who are “winners” to help fund the “losers.”  If there are many more losers than winners, the federal government the taxpayers step in and pay the costs of the losers.  And that looks to be a very real problem.  The committee report states that the insurers “expect Risk Corridor payments of about $725 million directly from taxpayers in 2014.” However, not all insures gave the committee estimate on what they expected from the risk corridors. “Extrapolating these estimates for the entire population enrolled in ObamaCare-compliant exchange plans means that taxpayers may be on the hook for upwards of $1 billion in 2014 alone.”

The risk adjustment programs takes money from insurers with healthier pools of customers and gives it to insurers with sicker pools.  The problem occurs if there are not enough insurers with healthy pools to cover those with sick pools.  In that case, the taxpayers step in to help the insurers with sicker pools.  (Notice a pattern?) The reports states, “As of May 2014, the companies surveyed by the Committee expect net payments through the Risk Adjustment program of about $346 million.”

Finally, ObamaCare’s reinsurance program is “funded by a fee on nearly all people with health insurance [and] subsidizes expensive medical claims of individuals enrolled in ObamaCare-compliant plans. The amount of the Reinsurance program bailout was set by statute and equals $10 billion in 2014, $6 billion in 2015, and $4 billion in 2016.” Here’s betting that the government finds a way to spend that entire $10 billion.

By my math that is about $11.3 billion.  But this is only August.  This could easily reach $12 billion by the end of the year.


Jobless Report the Newest Bad Economic News for Obama ("About Those Jobs Numbers" for July)

Unemployment is up again.

It’s the first Friday of the month, and that means the government released the unemployment numbers for the previous month.

Earlier in the week, it was all smiles for the Obama Administration as the U.S. Department of Commerce announced a four-percent growth in the gross domestic product in the second quarter of the year — a big change from losing over two percent in the first quarter.

But then came the news of poor homeownership rates, the stock market’s dive and now poor unemployment numbers.

The nation’s official unemployment rate went up again to 6.2 percent.  The workforce participation rate is barely changed and the 209,000 jobs that were created came in below estimates.

Derryck Green, a member of the National Center’s Project 21 black leadership network who regularly comments on the monthly jobless numbers and the state of the economic recovery under Barack Obama’s leadership, certainly did not see cause for celebration earlier in the week and sees the potential for continued misery ahead.  Except for President Obama, of course, as he and his family have a luxury vacation on the calendar.

Here is Green’s regular “About Those Job Numbers” analysis as related to the July jobless numbers:

Bad jobs numbers for the month of July continue to reflect a slow-moving economy.  And the week had started so promising for President Obama.

As he heads off to a luxury getaway in August, Obama might want to take the time off to rethink some plans he reportedly has to brand himself as an economic miracleworker.

To start, the first quarter’s economic contraction was revised yet again.  A previous revision showed that the economy contracted 2.9 percent.  The latest revision, released this week by the U.S. Department of Commerce, says that the first-quarter gross domestic product actually declined at a 2.1 percent rate, which — though revised modestly upward — is still no cause for celebration.  Preliminary estimates of second-quarter GDP growth is estimated to be around four percent, based on the strength of consumer and business spending.  That gives many economists and investors hope that the economy will continue to grow near this pace for the remainder of the year.

As has been seen, the GDP could be revised in the coming months, and time will tell to what extent this revision will be up or down.

As for job additions, the economy performed well below expectations.  The private firm ADP reported the economy added 218,000 jobs in July, down from 288,000 the previous month.  Many of these jobs were created in the retail industry.

There were hopes that the government would report 227,000 jobs were created.  On August 1, however, the federal Bureau of Labor Statistics said that 209,000 jobs were added to the economy in July.  The number of people suffering in part-time jobs because that’s all they can find remains around 7.5 million.  Part-time jobs now account for over 18 percent of the jobs in the economy, according to the BLS.

The unemployment rate has begun to rise again.  In July it rose by a tenth of a percentage point to 6.2 percent.  The alternative U-6 unemployment rate — the rate that includes all of the underemployed and discouraged workers that is often considered the true unemployment rate by financial experts — is also up a tenth of a point to 12.2 percent.

In particular, the unemployment rate for blacks increased to 11.4 percent from 10.4 percent in June.  Black teenage unemployment skyrocketed more than a point to now rest at 34.9 percent.  The known unemployment rate for Latinos, a demographic superficially growing in importance, saw their unemployment rate hold steady at 7.8 percent.

For some mildly good news, the overall workforce participation rate edged up ever-so-slightly by a tenth of a percent to 62.9 percent.

While there was some celebration about the GDP gains earlier in the week, anemic job creation and the rise in unemployment as well as the uneasiness of the stock market may make those in the Obama Administration want to check themselves.  There are 9.7 million people who remain unemployed, and 65,000 more people this past month (for a total of 741,000) who are reported to be so despondent that they have taken themselves out of the workforce completely.

There are other economic indicators that also signify the depths to which the economy has fallen.

For example, according to a study reported by the New York Times, the median household worth is $56, 335.  That’s down 36 percent from where it was in 2003, when the median household worth was $87,992.

Families are making less as a result of wage stagnation but they’re also spending more because the costs of goods and services continue to increase.  The effects of inflation are similar to taxes, especially when wages are unable to keep pace with inflation.

With those stagnant wages not keeping up with inflation, it may be of little wonder that homeownership has decreased to its lowest level in almost 20 years.  The Commerce Department notes that only 64.7 percent of homes are owner-occupied.  This number is projected to continue its decline.  Why?  One reason is that many would-be, first-time homebuyers are unable to find jobs with requisite salaries that would allow them to purchase a home.  Tighter lending restrictions by banks and decreased wages of those who have jobs also make it difficult for people to purchase homes.

Additionally, more and more Millenials find themselves still living with their parents because there aren’t enough full-time jobs being created to keep pace with demand.  Therefore, millions of people are forced to delay the process of buying homes.

Those who do own homes aren’t faring any better.  According to real estate firm Zillow, roughly 37 percent of mortgage holders owe more than their homes are worth.

Furthermore, more than a third of all Americans have some form of debt in collections.  As most are aware, collections negatively affect credit scores, which in turn result in higher interest rates that cost consumers more money when and if they’re granted additional loans and other lines of credit.  This is another sign that millions of people are still struggling to gain a sense of economic stability.  This creates yet another strain on the economy.

With this continuing economic paralysis, millions of Americans unable or at least pessimistic about finding work, an actual unemployment rate some experts suggest is closer to 18 percent, wage stagnation and increasing inflation and decreasing homeownership, President Obama has decided that he’s now — NOW — going to focus on the economy.

Obama intends to attach his presidential legacy to the growing economy?  I thought his legacy was Obamacare?

Regardless of what Obama says right now, I’m sure this economic focus won’t commence until after his two-week vacation at a lavish $12-million dollar estate belonging of a donor in Martha’s Vineyard.  Not bad for the one-percenter, I mean, the president who claims to be for the poor and against income inequality.

Not bad at all.

To his credit, the President needs a vacation.  After all, it’s extremely hard work verbally condemning and issuing empty threats to Russian President Vladimir Putin, antagonizing the Israelis as they fight Hamas terrorists, ignoring Iran’s pursuit of nuclear weapons and minimizing the atrocities and refusing to recognize the pure evil of ISIS terrorists in Iraq.

It’s hard work not taking responsibility for encouraging tens of thousands of disease-carrying immigrants from Central America to come here illegally.  And it’s especially hard work going to high-priced fundraisers in New York and Los Angeles — particularly while the world burns. 


New “Food Czar” Part of Ongoing Obama Divisiveness

Justin Danhof, director of the National Center’s Free Enterprise Project, said there is “nothing that the Obama Administration can’t make political — even our favorite steak and potatoes.”

Calling her the Obama White House’s new “food czar,” Danhof criticized the past activities of Angela Tagtow — the newly-appointed head of the U.S. Department of Agriculture’s Center for Nutrition Policy — and noted that it gives the impression that she will likely want to spend more government time and taxpayer money focusing on faddish environmental activism in the form of promoting low-carbon foods, urban gardening and cheering on nanny-state soda bans rather than relying upon time-honored and sound science-based nutritional guidelines.

Host Rick Amato, on the 7/30/14 edition of “The Rick Amato Show” on the One America Network, said that this appointment is yet another example of Barack Obama seeking to divide Americans through issues involving race, sex and wealth, among other things.  Danhof added that Obama seems to make everything political, and that any blame for what Tagtow might do — including the possibility of any promotion of national dietary standards similar to Michelle Obama’s unpopular school lunch guidelines — begins and ends with the President.


Obama & Income Inequality: Killing The Goose That Lays The Golden Egg

Note: This post was written by NCPPR’s intern, Scott Alford.

One of the rhetorical centerpieces of Obama’s second term in office has been reducing income inequality. President Obama called income inequality “the defining challenge of our time.” From talk of raising the minimum wage to closing the gender pay gap, Obama has stressed the role that government should have in supporting the middle class. However, the inequality talking points seldom discuss the actual consequences of government policies—consequences that fuel the wealth gap. Rather, wealthy entrepreneurs have become the Administration’s scapegoat for the sins of governmental economic mismanagement.  Instead of blaming businesses and markets for creating wealth inequality, the Obama Administration should begin by addressing the how government worsens income inequality. 

The Obama administration’s approach to economy has been to declare war on the 1% and attempt to drag down the wealthiest businessmen to reduce the wealth gap. While this approach might be “good enough for government work,” this does not actually create wealth and raise the standards of living for anyone. Margaret Thatcher argued that often liberals think, “So long as the gap is smaller, they would rather have the poor poorer.” In other words, liberal policies attempt a greater wealth equality by lowering the standard of living for both the rich and the poor.

Obama’s policies to tax and regulate the rich don’t make the poor richer but rather limits the ability of the rich to save, make investments, and create a better economy so that the poorest can have increased job opportunity and rising wages.  Killing the goose that lays the golden egg creates economic equality at the cost of economic prosperity.

The Obama Administration proposals to reduce inequality would exacerbate the plight of the poor.  Raising the minimum wage is one example. A minimum wage hike is supposed to help raise people out of poverty by forcing employers to pay them more.  In reality, raising the minimum wage raises the price of labor, and when the price of labor increases employers will demand less of it. The economic reality of raising the minimum wage is that it results in layoffs and fewer jobs.

This harms some of the most vulnerable in our society such as minorities and young people.  These people often lack job skills, but their one advantage is they can work for lower wages.  This enables them to begin acquiring the job skills that will eventually result in higher wages.  Politicians are effectively sawing off the lowest rungs of the economic ladder for such workers by raising the minimum wage.

Obama’s push to increase the minimum wage is, ironically, one of biggest threats to prosperity for the poor.


Federal Subsidies for ObamaCare Question Likely Supreme Court-Bound

Discussing the recent “circuit split” when different federal appeals courts delivered different rulings on the legality of taxpayer-funded subsidies on the federal ObamaCare exchange, the National Center’s Dr. David Hogberg told One America Network’s Rick Amato that both courts agreed the “substance of this law comes from the wording.”  But they nonetheless still came up with different solutions to the problem that will probably see the question ultimately decided in the U.S. Supreme Court.

On the 7/25/14 edition of “The Rick Amato Show,” Dr. Hogberg noted both the D.C. Court of Appeals and the 4th Circuit Court of Appeals agreed — in rulings handed down on the same day — that there was no evidence on Congressional intent.  It may be that members of Congress or, at least, Democrats, wanted premiums subsidies to go to both federal and state exchanges.  However, neither Court could find any definitive evidence of what Congress intended during that time that Congress debated and passed ObamaCare.

While he favored the logic of the D.C. Circuit because they operated with the motivation that they “actually have to deal with evidence,” Dr. Hogberg said the 4th Circuit’s more willful decision to defer ObamaCare implementation guidance (thus siding with continuing federal subsidies) to the IRS likely means the issue will “eventually wind up in the Supreme Court, and what happens there — who knows.”  A pessimistic Dr. Hogberg suggested Chief Justice John Roberts and the other justices may not want to be saddled with the “headache” of ruling that people lose their subsidies on the federal exchange.


National Center Shareholder Activism Precedes Congressional Bailout Bombshell

Of the increase of the relationship between big business and big government, there shall be no end.  That is, unless the American people decide to stand up and do something about it. 

Concerning the current and growing confluence of large corporations and big government, the media is often silent.  While the mainstream press is generally wary of the affairs of big business, their collective adoration of big government policies often causes them to turn a blind eye to when the two work together.  

These business/government relationships desperately need more sunshine because, in the equation of big government plus big business, the loser is often the American people generally and American taxpayers specifically.   

So left unfettered, business and government grow in tandem while liberty is trampled.


ObamaCare is perhaps the most striking example of this phenomenon.  But the National Center’s Free Enterprise Project is fighting back.  Through its intensive program of shareholder activism – with 50 meetings under its belt this year – National Center representatives often combat this symbiotic relationship.  

As written, ObamaCare provides multiple mechanisms by which health insurance companies might obtain funds to cover potential shortfalls.  One such mechanism is known as the risk corridor.  As the National Center’s David Hogberg Ph.D. has explained

ObamaCare’s risk corridors are a temporary program that is supposed to help insurers mitigate the enormous amount of risk inherent in the ObamaCare exchanges.  Under this program, an insurer in the exchange whose costs amount to 97% or less of its premiums must contribute part of its profits to reimburse insurers whose costs are 103% or greater of their premiums.  Insurers who are profitable contribute only a portion of their profits while insurers who are not profitable see only portion of their losses reimbursed. 

Hogberg rightly points out that risk corridors are just a different way of saying bailouts.  

As the theory of ObamaCare started to become a reality with its disastrous rollout, the dangers that conservatives had warned about for years also sprung up – including the potential for a massive taxpayer bailout of the health insurance industry.  

As it turns out, the risk corridor provisions as they were written into the law weren’t sweet enough for the health insurance industry, so many of its lobbyists and leaders went back to the Obama Administration with their hands out asking for more.  Team Obama, led by senior advisor Valerie Jarrett, seemed more than happy to accommodate them.  

Now, thanks to a report published yesterday by the U.S. House of Representatives Committee on Oversight and Government Reform, we know just how involved the health insurance industry was in securing this ever-growing bailout as well as how much the Obama Administration accommodated them.  

The report details communications between White House officials and health insurance executives/lobbyists that shows a very similar and simple pattern.  Health insurance officials demand more money and flexibility and the White House obliges.  Insurance leaders, representatives and lobbyists from companies such as Aetna, Humana, Blue Cross Blue Shield, Health Net Inc., WellPoint and CareFirst were all intimately involved in discussions to increase the risk corridor bailout.  

The report notes that: 

According to information obtained by the Committee, several insurers expected Risk Corridor payments prior to the start of open enrollment, and appear to have underpriced their ObamaCare-compliant plans as a result.

After the Administration received negative press attention about a possible taxpayer-funded bailout of health insurance companies, the Administration signaled in March 2014 that it would implement the Risk Corridor provision in a budget neutral manner. 

Insurance companies were generally displeased with this announcement and started a powerful lobbying campaign.  Part of the insurers’ lobbying campaign was a direct appeal to the President’s most senior advisors including Valarie Jarrett.  Insurance companies and their chief trade group warned that a budget neutral Risk Corridor program would lead to large premium increases for exchange plans in 2015.  Essentially, insurance companies presented the Administration with a choice: face significantly higher premium increases in 2015 for exchange plans or make taxpayers bail out insurance companies.

Documents show that Ms. Jarrett took the warnings of the insurance companies very seriously and indicated that the Administration had given insurers 80 percent of what they sought.  Insurers were not satisfied with the Administration’s first change and lobbied for additional protection.  In May 2014, the Administration delivered to insurers, modifying the risk corridor payment formula to increase the size of the bailout insurers could expect to receive. 

Again, the odd man out in this calculus is the American people.  

So, earlier this year, while conservative pundits and congressional leaders took the fight over ObamaCare to the courts and the Administration, the National Center focused its sights not just on the White House, but also the corporations that played a major role in creating – and are now exacerbating – the law’s devastating effects.  

National Center representatives quizzed the CEOs of many of the major health insurers about whether they would accept a taxpayer bailout through ObamaCare’s risk corridor provisions.  

For example, at the annual meeting of Humana shareholders, the National Center’s Hogberg asked Humana CEO Bruce Broussard, in part: 

In February, Forbes reported that Humana planned to take up between $250 million and $450 million from the ‘risk adjustment mechanisms in ObamaCare’ including the risk corridor.  Then in March, the Obama Administration proposed changes to the ACA that may increase this potential bailout for insurers in 2015 by ballooning the amount that taxpayers may have to pay insurers for company losses.

The taxpayers are already on the hook for so much of this law.  So, my question to you is, if the situation arises where Humana qualifies for taxpayer money through the risk corridor, can we get your promise that you will reject it?

Broussard (who is listed in the Committee on Oversight and Government Reform report as having attended a meeting with Valarie Jarrett regarding ObamaCare’s messaging and problems) said that Humana would be taking the taxpayer money if available.  

And so too did the CEOs of WellPoint, Aetna and UnitedHealth (whose CEO was less than enthusiastic about taking taxpayer money, but nonetheless declined to decline.)   

We had every expectation that these CEOs would confirm that they would take the money.  Indeed, we now know that health insurance industry leaders working for, and representing, these companies were working behind the scenes to increase the risk corridor bailout.  

So why did we bother asking the question?  

The answer is two-fold.  First, it was to get the companies on the record on this massively important issue.  From here on out, Aetna, Humana, WellPoint and UnitedHealth are all on record as willing to take a taxpayer bailout.  The second reason relates back to Dr. Hogberg’s definition of the risk corridors in which he noted that they are supposed to be temporary.  A sunset provision in the law means that the risk corridors are going to expire at the end of 2016.  However, in a press release following the WellPoint shareholder meeting, Dr. Hogberg warned that: 

I also doubt that the risk corridor will have a beginning and an end.  If the exchange risk pools prove unstable — that is, if the young and healthy people leave after 2014 and 2015 in the face of premium hikes — then insurers will likely be petitioning the Obama Administration to extend the risk corridors beyond three years.

That is exactly what we are working to prevent.  By exposing the industry and applying pressure on companies who willingly take taxpayer bailouts, the reputational risk to the likes of Aetna and Humana may start to outweigh the taxpayer largess.  

The Committee on Oversight and Government Reform report clearly shows that the Obama Administration appears more than willing to do the bidding of the health insurance industry.  This means is vital to cut the snake off at its head before it can request even more taxpayer bailouts.   

And these bailouts may be massive.  The Committee report rightly notes that the bailout is “potentially unlimited,” and the Weekly Standard notes the bailout “is now likely to be in the ballpark of $1 billion.  To put that into perspective, the year before Obama took office, the ten largest health insurers’ total profits were only $8 billion — combined.”

Bailouts do not occur in a vacuum.  Like any transaction, there must be a willing buyer and a willing seller.  The problem here is that the buyer (the health insurance industry) is asking a seller (the government, which doesn’t really have any skin in the game of its own) for something that is yours and mine – our tax dollars.  

I, for one, have had enough. 



Heritage: ObamaCare Increases Private Coverage By Only Half Million

A new analysis of health insurance data by the Heritage foundation finds that ObamaCare’s reduction of the uninsured via private insurance was relatively miniscule. Through the first quarter of 2014, only 520,402 people gained coverage via the individual market.  

As the chart below shows, the individual insurance market grew by a net 2.2 million, but that was partially offset by a 1.7 million decline in the employer market.  

The authors of the report, Ed Haislmaier and Drew Gonshorowski, say “the reduction [in the employer market] can only be explained by employers’ discontinuing coverage for some or all of their workers or, in some cases, individuals losing access to such coverage due to employment changes.” However, the report does not explain why employers are dropping coverage. Certainly, there have been those who have predicted that employers would “dump” employees into exchanges, but the data presented in the report is not definitive on that point. 

The authors also write that “it is now clear that at least half of any net increase in total health insurance coverage during the first year of Obamacare will be as a result of its expansion of Medicaid.” Indeed, the study found Medicaid enrollment increased about 4.3 million from September 2013 through March 2014 in the 26 states and Washington, D.C. which expanded their Medicaid programs. In the states that did not expand the programs, Medicaid increased 629,284.

The problem with the 4.3 million figure is that we still don’t know how many of those would have qualified for Medicaid even without the expansion.  For the sake of argument, let’s assume that in the expansion states the people who enrolled and would have qualified without the expansion is the same as the number of new enrollees, 629,284, in the non-expansion states.  That would reduce the number of newly insured due to Obamacare’s Medicaid expansion to less 3.7 million.  

But keep in mind that the expansion states include the first, third and fifth most populated states—California, New York and Illinois—which means it is quite possible that the number of people who signed up for Medicaid in the 26 states and DC and would have qualified without the expansion may be quite higher than 629,284.

 More from Haislmaier here.


You'll PAYE Even More For College

Note: This post was written by NCPPR’s intern, Scott Alford.

When my father decided to pursue his college degree, mowing lawns and repairing circuit boards gave him more than enough to pay his own way. For a student attending college today, however, that would be a superhuman feat. The price of college has nearly doubled in just the last 15 years. While most American students look to Washington for the answer to affordable college education, few realize that government intervention is the major driver of sky-rocketing college costs. To deal with the student loan crisis, the Obama Administration has proposed extending a program known as Pay As You Earn (PAYE). However, this proposal is simply masking the symptoms of the bad policies Washington has perpetuated in the student loan market.


The PAYE proposal would work by allowing students to pledge a part of their post-graduation income for a set period of time as payment for their loans, regardless of how much they owe or for how many years they were in school. In other words, after the student makes payments for the fixed period of time, he no longer owes any money even if his student loan debt has not been paid in full.  Sounds great, right?

Not quite. In the first place, students are often unable to make enough money to repay college loans. Government loans have saturated the market with college graduates, many of whom will never find a high-paying job in their field. PAYE does nothing to increase students’ post-college earning potential and thus improve their ability to pay back their loans.

Additionally, it perpetuates the problem of college costs and debt. Like student loan guarantees, PAYE gives colleges and universities increased incentive to increase tuition without any market discipline. Colleges have a greater incentive to charge more since students don’t have to worry about how much they have to pay back since it will be fixed in the future. For millions of students and their families who don’t have access to PAYE, college tuition will continue to straddle them with more debt as college costs keep rising. To top it all off, PAYE is a massive loss for the taxpayers who are often absorbing the poor decisions which the government incentivized.

PAYE is not the solution to make college more affordable or curb the growing student loan debt crisis. Rather, PAYE is fueling the fire of the status quo.

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