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HB 1425: Necessary Regulatory Reform
that Will Protect Consumers and Lower Prices

Executive Summary

Full Analysis

“Government has nothing to give anyone except what it first takes from someone else,” reads Principle 5 of Governing by Principle. For this reason, the best way for government to foster prosperity is to remove barriers to opportunity rather than directly intervene in the economy. Some of these barriers include a lack of education and job training, high taxes, and heavy regulatory burdens. These barriers kill the dreams of entrepreneurs before they even take flight.

While lawmakers in Mississippi have done an admirable job in recent years of advancing educational opportunity and cutting taxes, the challenge of regulatory reform remains. The basis of government regulation is the responsibility to protect public safety, health and welfare. These are broad categories that easily lend themselves to abuse. So is there a limit to government regulation?

High Court Places Limits on Occupational Licensing Boards

The U.S. Supreme Court has weighed in on this question, determining that regulatory practices that give industry participants an unfair market advantage are impermissible. Explained the Court in its recent N.C. Dental Board v. FTC case:

Federal antitrust law is a central safeguard for the Nation’s free market structures. In this regard it is “as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the pro­tection of our fundamental personal freedoms.” The antitrust laws declare a considered and decisive pro­hibition by the Federal Government of cartels, price fixing, and other combinations or practices that undermine the free market.

On the basis of these principles, the Court held that occupational licensing boards that are controlled by “active market participants” (that is, people who currently practice in the profession or occupation regulated by the board) do not enjoy sovereign immunity (immunity from lawsuits) unless the boards are under the “active supervision” of the state. Cautioned the Court:

Limits on state-action immunity are most essential when the State seeks to delegate its regulatory power to active market participants, for established ethical stand­ards may blend with private anticompetitive motives in a way difficult even for market participants to discern. Dual allegiances are not always apparent to an actor. In conse­quence, active market participants cannot be allowed to regulate their own markets free from antitrust account­ability. … Parker immunity requires that the anticompetitive conduct of nonsovereign actors, especially those author­ized by the State to regulate their own profession, result from procedures that suffice to make it the State’s own.

In short, the Court has ended the practice of unaccountable boards being given free reign within their own sphere. If boards are going to be comprised of “active market participants” that directly benefit from the regulations they impose, especially if those regulations keep competitors out, these boards must be made accountable to state government. And while the Court allows for some leeway in how this supervision is carried out, “the State’s review mechanisms [must] provide ‘realistic assurance’ that a nonsovereign actor’s anticom­petitive conduct ‘promotes state policy, rather than merely the party’s individual interests.’” At a minimum, these mechanisms must meet the following standards:

What’s Wrong with Occupational Licensing?

The Supreme Court has been relatively tolerant of a variety of regulatory schemes (e.g., Wickard, Chevron, Whitman), which makes the N.C. Dental Board decision all the more significant. While the case may have further implications for other regulatory actions, it most immediately applies only to occupational licensure.

The textbook definition of occupational licensure is that it “is a form of government regulation requiring a license to pursue a particular profession or vocation for compensation.  Government licensing generally entails the creation of a licensing board that sets standards for entry into the profession and demands fees to sustain its regulatory activities. Consumers are familiar with licensed professionals, like doctors and lawyers, but do not realize that many other trades require a license or that activities licensed in one state are often not licensed in another.

According to a 2015 White House report on occupational licensing:

In a rare case of agreement between the Obama and Trump administrations, acting Federal Trade Commission Chairman Maureen Ohlhausen is creating an Economic Liberty Task Force to address burdensome occupational licensing requirements. Ohlhausen explains:

The public safety and health rationale for regulating many of those occupations ranges from dubious to ridiculous. … Market dynamics will naturally weed out those who provide a poor service, without danger to the public. For many other occupations, the costs of added regulation limit the number of providers and drive up prices. These costs often dwarf any public health or safety need and may actually harm consumers by limiting their access to beneficial services. Other evidence suggests that such regulations are unnecessary or overly broad.

Mississippi regulates a high number of professions. A review by the Institute for Justice found that Mississippi licenses 55 out of 102 mid-to-low-level professions. We license court clerks (only 3 other states do that); residential drywall installers (8 other states); and landscape workers (9 other states). Somehow, nearly every other state manages to get by without licensing these trades.

Numerous studies have demonstrated that, by and large, occupational licensing has no correlation with public safety, health or welfare. Observes the White House report:

Licensing laws also lead to higher prices for goods and services, with research showing effects on prices of between 3 and 16 percent. Moreover, in a number of other studies, licensing did not increase the quality of goods and services, suggesting that consumers are sometimes paying higher prices without getting improved goods or services. … Most research does not find that licensing improves quality or public health and safety.

In fact, the licensing of some professions has more ominous roots. According to research by the Cato Institute:

Before the Second World War, black Americans were increasingly successful in becoming plumbers, barbers and electricians. Trade unions convinced states legislatures to pass laws that made it difficult for them to gain licenses. … By 1941, all of the states of America except Virginia and New York had passed licensing laws obstructing black men who wanted to become plumbers, barbers, and/or electricians. The laws exploited the fact that black people tended to be less well educated and poorer to exclude them from these trades. Simply by being required to pass written exams and pay for courses, they were obstructed. … The purpose of such licensing laws may have been to discriminate against blacks or to reduce competition or both. Whichever it was, it was certainly against the public interest.

This is not say that all occupational licensing is racist, but the coincidence between licensing and prejudice suggests just how easily so-called attempts to protect the public welfare can go astray. This subjective nature of many licensing policies is what prompted the Supreme Court to force states to realign their licensing practices with objective standards that protect the public welfare while preserving the free market.

HB 1425: A Restrained Approach to Occupational Licensure Reform

Prompted by the N.C. Dental Board decision, the Mississippi legislature is considering a bill that would meet the standard of “active supervision” required by the Supreme Court. The bill would do the following:

HB 1425 takes a restrained approach toward addressing the reforms required by the Supreme Court. The bill does not call for a total overhaul of the state’s occupational licensing practices. Such an overhaul, suggests the Federal Trade Commission, would entail limiting board activity to an advisory role or restricting board membership to those with no financial interest in the regulated profession.

HB 1425 also does not apply to all boards, but only those controlled by “active market participants.” The bill does not radically expand the governor’s authority over licensing boards, but disperses this review power to other statewide officers.

Again, it is worthwhile recalling that the Supreme Court requires “active state supervision” that is substantive and will be evaluated based on “all the circumstances of the case.” There is no other way to read this guidance than to presume that the state must provide for something like the active review process mandated by HB 1425. All in all, HB 1425 is aligned with a narrow reading of the N.C. Dental Board case that will protect state occupational licensing boards from frivolous lawsuits while also encouraging licensing boards to respect free market principles.

 

Combatting Welfare Fraud in Mississippi with Commonsense Reforms

A bill (HB 1090) before the Miss. Senate implements a number of best practices aimed at combatting welfare fraud. The bill would save the state an estimated $40 million [1] annually by verifying eligibility for Medicaid and SNAP/food stamps. The bill also creates oversight procedures – like tracking where EBT (food stamp) and TANF cards are used – to discourage fraud.

Medicaid Fraud

The U.S. Government Accountability Office (GAO) warned again this year, as it has for the past 14 years, that Medicaid is a “high-risk” program owing to “vulnerabilities to fraud, waste, abuse, and mismanagement.” An estimated $60 billion in Medicaid expenditures are thought to be lost to fraud each year. Likewise, according to the National Conference of State Legislatures, “Fraud and abuse in Medicaid cost states billions of dollars every year, diverting funds that could otherwise be used for legitimate health care services.”

There are basically two types of Medicaid fraud: provider fraud and enrollee fraud. While the federal government apparently has no mechanism in place to accurately track fraudulent Medicaid spending, its Centers for Medicare & Medicaid Services estimates that “eligibility errors” account for the majority of payment “errors.”

This suggests that the majority of Medicaid fraud is generated by ineligible recipients. Such recipients are generally misreporting identity, residency, citizenship status and/or income. Identify theft, for example, is rampant in Medicaid. Arkansas recently audited its Medicaid rolls and found 20,000 enrollees with “high-risk” identities, many of them using stolen or falsified Social Security numbers. Illinois conducted a similar review and found 14,000 dead people on Medicaid.

Under federal law, the Miss. Division of Medicaid is supposed to verify eligibility on an annual basis. States have the option of relying on “self-attestation” for eligibility and cross checking this information against a federal database (PARIS) that is supposed to verify Social Security number usage.

In 2016, the PARIS database flagged only 2.4 percent of Mississippi Medicaid recipients as having a Social Security number used by someone in another state. By contrast, other states are finding an average fraud rate of 10 percent after implementing the reforms mandated by HB 1090. These states are using private-sector databases to quickly and inexpensively verify ongoing eligibility.

HB 1090 would require the Division of Medicaid to enter into a competitively bid contract to hire a vendor to monitor ongoing Medicaid and SNAP/food stamp eligibility. The vendor would only be paid out of the savings generated by catching fraud. The vendor would not be able to actually remove anyone from Medicaid or any other welfare program, but would only flag suspicious information, leaving it up to Miss. Medicaid to investigate and handle the removal of verified cases of fraud.

States that have implemented similar monitoring systems have seen a return on their investment of well over 10 to 1. Illinois, for instance, is saving almost $400 million annually. Pennsylvania saved $710 million in 18 months. Minnesota estimates annual savings of $307 million.

At least 11 other states are currently running or have recently run some form of enhanced welfare verification audit: Alaska, Arkansas, Illinois, Kansas, Maine, Massachusetts, Minnesota, Missouri, Pennsylvania, Rhode Island, and Wyoming.

Welfare Fraud & Abuse

The eligibility verification system created by HB 1090 would apply to all Mississippi welfare programs administered by the Division of Medicaid and the Department of Human Services (DHS), including SNAP/food stamps and TANF. Food stamp fraud in Mississippi is a serious problem, if only judging from the many cases of fraud reported in the media. According to a 2012 report in the Daily Journal, “In the last fiscal year alone, 1,705 people were disqualified from Mississippi’s Supplemental Nutrition Assistance Program – SNAP – for making false claims and bilking the program out of more than $2.7 million.”  These 1,705 cases of fraud represent 0.2 percent of total enrollment. The actual fraud rate is likely much higher.

“The application process for SNAP is based on an ‘honor system,’ trusting the applicants truthfully submit their income and number of dependents,” acknowledges DHS fraud investigator Ken Palmer. In particular, DHS has found that a number of recipients do not report income, causing “the client to get taxpayers’ dollars that they were not entitled to.”

While DHS’s efforts at catching fraud are appreciated, the department is relying on a “pay-and-chase” model that enables fraudsters to remain on the rolls indefinitely, until and unless they are actually caught. Using existing technology to review welfare eligibility on a quarterly basis would speed up the process of eliminating fraud, saving the state money and sending the message that fraudsters shouldn’t target Mississippi.

In addition to proactively verifying eligibility, HB 1090 reigns in welfare abuse by eliminating several loopholes used by the Obama administration to gut landmark welfare-to-work reforms signed by President Bill Clinton in 1996.

Federal law, for example, requires most working-age (18 to 50) able-bodied, childless adults to cycle off of food stamps after 3 months unless they are working, training or volunteering for at least 20 hours a week. Under a “waiver” offered by the Obama administration, Mississippi dropped this requirement from 2009 to 2016. The state has similar waivers that have eliminated income and asset tests for food stamps. These are still in place.

Kansas is another state that reinstituted the able-bodied adult work requirement, but then tracked 41,000 former recipients to analyze the results. Half obtained employment almost immediately, and almost two-thirds were working within a year. Incomes rose by an average of 127 percent a year, with many finding permanent well-paying jobs in a variety of industries. Other quality-of-life measures, like marriage rates, also increased.

HB 1090 would require legislative permission for Mississippi to again waive food stamp work requirements. The legislature would also have to statutorily authorize any waivers eliminating income and asset standards.

Other states have found good reason to implement the reforms in HB 1090. Michigan discovered it had thousands of lottery winners on welfare. “I feel that it’s OK because I have no income, and I have bills to pay,” admitted one million-dollar winner. “I have two houses.”

Since Michigan, like Mississippi, does not have an asset standard, even multimillion-dollar winners could legally remain on food stamps until public outrage forced a change in law. In Ohio, the millionaire son of an Iranian prince was found to be receiving both food stamps and Medicaid. The man reportedly held $4.2 million in a Swiss bank account, lived in an 8,000 square foot home and had a BMW and Lexus parked in his four-car garage. In his defense, the fraudster claimed, “It was our right to apply [for food stamps] and I applied. If you don’t like the system, change it.” Ohio’s welfare programs, not unlike Mississippi’s, waive asset standards. “I answered every question asked by benefit workers,” claimed the man.

Along with restoring federal welfare-to-work reforms, HB 1090 would provide state policymakers with additional information as to how the state’s welfare benefits are being utilized. Among other things, the bill would track out-of-state welfare usage. When Maine ran such a check, they found $3.5 million worth of transactions in Florida, including hundreds of thousands of dollars in withdrawals from ATMs near Walt Disney World. In turn, when Florida ran such a check, they found 3,500 of their food stamp recipients were also receiving food stamps in at least one other nearby state, including Mississippi. The bill would also codify and expand the list of prohibited ATM (TANF) transactions at liquor stores, casinos and strip clubs to include spas, nail salons and similar locations.

Note 1: A fiscal note from the Department of Human Services, prepared by The Stephen Group, estimates annual savings from Medicaid verification of $6.9 million in General Fund savings and $6.2 million in federal savings from the SNAP/TANF reforms. (Mississippi pays about 25 percent of the cost of Medicaid while the federal government pays about 75 percent. The federal government pays the full share of SNAP/TANF costs, though the state is responsible for administrative costs.) The Stephen Group report assumes a fraud rate of 1 percent for Medicaid managed care; 1 percent for SNAP; and 2 percent for Medicaid long-term care. Other states that have conducted similar reviews have identified much higher fraud rates, depending on the nature of the audit: Illinois (34 percent); Arkansas (ranges between 3, 12 and 24 percent); Minnesota (17 percent). Based on the experience of other states, we anticipate an average eligibility fraud rate of 10 percent of total enrollment, which would be roughly 72,000 cases based on FY2016 average monthly enrollment of 728,704 (excludes CHIP). Not every enrollee costs the same, but annual spending per enrollee in Mississippi is $5,913: the range being $18,592 for the most expensive enrollees to $2,403 for the least expensive. If we use the very conservative estimate of $3,000 per year in enrollee costs (much less than The Stephen Group assumes), we arrive at the following: $3,000 x 72,000 cases divided by 6 months = $108 million. Based on our current FMAP, this translates into $27 million in savings for a half year. If the audit is run twice in a twelve-month period, this number will double to $54 million. Hence, we conservatively assume savings ranging from $27 million to $54 million, the average of which is $40 million. To be clear, the savings other states are seeing is not only from a one-time review of their rolls, but from constant monitoring. We recommend a quarterly audit, resulting in even greater savings. We also estimate there will be some administrative savings as non-eligible individuals drop off of the SNAP/TANF rolls. The Stephen Group report estimates the enhanced eligibility and other reforms will cost about $3 million annually, but expects federal funding to cover as much as two-thirds of this amount. Assuming the cost is even as high as $2 million annually, this would result in a return on investment of 20 to 1.

By Forest Thigpen

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Governor Bryant is drawing some criticism for saying he was driven by his Christian faith to sign a particular law. Let's think about that.

All public officials have a reason for the position they take on a piece of legislation. In some cases, it's a desire to be re-elected; in other cases, they might want to reflect the majority of constituents they've heard from. But often, their votes are driven by a philosophy or ideology that reflects their understanding of the purpose of government.

The reality is that such a philosophy or ideology has been influenced by someone else. Maybe a professor in college, or a favorite philosopher or writer. Bernie Sanders, as a self-proclaimed socialist, presumably was influenced by the writings of Karl Marx.

The idea that being motivated by faith is a violation of the constitutional separation of church and state reflects a significant misunderstanding of that concept, which is a subject for another time. But today's question comes down to this: Why would it be constitutional to be influenced by Karl Marx but not by Jesus Christ?

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