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“Workable Solutions for Florida’s Challenging Insurance Problems” (PDF)

VIEW FULL BRIEF:
Brief of Amici Curiae The James Madison Institute, et al.

SUMMARY OF ARGUMENT:

“Federalism is one of the cornerstones of our constitutional system.  By reserving broad powers to the States and to the people, federalism protects liberty, enhances accountability, and fosters innovation.  The Act, however, undermines the essence of federalism by denying States a meaningful choice on whether to expand their state Medicaid programs.  States depend heavily on the hundreds of billions of dollars dispersed by the federal government through Medicaid.  Because the federal government funds at least half of each State’s Medicaid costs, no State could operate a comparable program without federal dollars, and no State could realistically decline to offer basic medical care to its neediest citizens.  Nevertheless, the Act requires States to spend tens of billions of additional dollars to expand Medicaid coverage, and threatens States with the loss of all Medicaid funding unless they comply.  Accordingly, the Act leaves States with no realistic choice but to continue to participate in Medicaid, in violation of the Tenth Amendment and the principles of federalism articulated in South Dakota v. Dole.

“Moreover, because of Medicaid’s size and the Act’s all-or-nothing penalty provisions, the Act is uniquely suited for scrutiny under the coercion doctrine.  Medicaid represents far and away the largest source of federal outlays to the States, and the largest component of spending by the States.  The Act, in turn, requires States to spend tens of billions of additional dollars to expand coverage, on penalty of losing every dollar of federal Medicaid support.  These and other provisions suggest that Congress designed the Act to preclude the States from exercising a meaningful choice.  For these reasons, if the coercion doctrine is ever to have any role in protecting the principles of constitutional federalism, the Act must be deemed invalid.”

CONCLUSION:

“For these reasons, States have no meaningful choice other than to comply with the ACA.  Accordingly, the ACA is invalid under the Tenth Amendment and the principles of federalism articulated in South Dakota v. Dole.“

TALLAHASSEE – “Slowly, then all at once,” is how Ernest Hemingway explains bankruptcy in his classic novel The Sun Also Rises.  These were also the words Rep. Jeff Brandes, R-St. Petersburg, used to describe what could happen toFlorida’s municipal pension plans if left in their current form. 

As of year-end 2011,Florida’s 100 largest cities oversee 208 separate pension plans for their employees. Of these, only 14 percent received a grade of “A,” or were at least 90 percent funded; 62 percent  received a grade of “C” or lower, and 15 percent were woefully underfunded. 

The grading system used to calculate pension funding was formulated by professional actuaries hired by pension plan governing boards across the state, and their findings were based on those boards’ assumptions – including some based on optimistic scenarios concerning their future return on their pension funds’ investments.

For many Florida taxpayers, these problems mean that they will be receiving less and less in the form of government services in return for their money. That’s because tax dollars will have to be diverted from other budget priorities so that municipal governments can cover the gap between existing funds in a particular pension account and the amount needed to fully fund it. The more underfunded the pension plan, the more taxpayer cash will be needed to keep the commitment.

Unfortunately, the funding gaps are not static. As pension plans — particularly the traditional “defined benefit (DB) plans” — become more generous, cover more participants, and even lower the age of retirement, the funding gaps continue to grow. 

Indeed, the DB plans are a huge drag on public finances.  These plans promise specific benefits to retirees. Most private businesses have long since shifted from DB plans to defined contribution (DC) plans — 401(k) type plans to which the employer and employee both contribute. Only 13 of Florida’s 100 largest municipalities have switched to DC retirement plans, though more now provide both DB and DC plans for employees to choose.

Many public employees rely on pension income after they stop working and typically plan their public sector careers taking their pensions into account. So it’s not entirely surprising that many are reluctant to risk what they view as secure retirement income by switching to a 401(k)-style plan that entails investing in financial markets.

Public employees’ general reluctance to switch has been evident in the relatively low number of state government workers who have chosen to participate in a 401(k)-style DB plan since it became an option for them a decade ago. This reluctance has persisted despite the potential for higher returns, the availability of safe forms of investment, and the DC funds’ portability – an advantage for those who do not remain in government service long enough to earn a traditional pension. In the 401(k) plans, the money the employee contributes belongs to the employee.

Even so, the well-publicized volatility of the stock market has created a climate of fear that makes the DB plans’ “guarantee” of a secure pension more attractive. The problem, however, is that many of the traditional DB plans funded solely by the taxpayers are no longer sustainable.

According to Representative Brandes, there are only two ways to solve the municipal pension problem in its current form: increase funding or reduce benefits. Increasing the funding would require raising taxes, increasing employee contributions, or both; decreasing benefits could be perceived as violating contractual obligations – and even ignoring a moral obligation to long-time municipal employees who had counted on a certain amount of income when they retired.

All of these are politically polarizing options that still fail to address the underlying structural problem: The incentives leading to a solution are not as strong as the political incentives to “kick the can down the road.” Rep. Fred Costello,R-OrmondBeach, explains:

“If DBs go bust and need more funding, the bargainers of DBs will feel no pain.”  In other words, those advocating larger government-guaranteed pensions stand to lose nothing if the pension plans go bankrupt. Unless the municipal governments go bankrupt, they will be obliged under the law to fulfill their pension commitments, even if it diverts scarce funds from other important municipal priorities.

As a result, the taxpayers will lose. They’ll pay more but receive less in return for their tax dollars. While these defined benefit plans are slowly straining municipal budgets and have the potential to break many of them all at once, the defined contribution plans are working quite well in the private sector.

TALLAHASSEE– BP is still doing everything it can to make amends for the Deepwater Horizon disaster.  That’s the message conveyed by Geir Robinson, British Petroleum’s Vice President of Economic Restoration for theGulfCoastregion.  Last Friday, the BP executive announced a three-point restoration plan to a small but influential group of stakeholders at the Associated Industries of Florida headquarters in downtownTallahassee. 

Beginning with the eleven men that died on April 20, 2010, due to the now infamous platform explosion in the Gulf of Mexico, Robinson explained that above all, “Eleven people lost their lives and that’s terrible.  Eleven lives is a huge loss, and that requires a huge response.”  Compensation details for the families of the victims were not disclosed in the briefing.

Robinson highlighted BP’s efforts aimed at revitalizing theGulfCoastenvironment—a sore subject for many Floridians who saw their pristine beaches and theGulf of Mexicosoiled as a result of the oil giant’s negligence.

Robinson readily acknowledged the depth and intensity of the national outcry over the disaster and referred to the around-the-clock media coverage showing massive amounts oil gushing into the Gulf from BP’s severed well.  Interestingly, Robinson admitted that the camera displaying the images of the gushing hydrocarbons was actually the property of BP on loan to CNN. Floridaresidents, along with the nation, watched those images in horror until the well was finally sealed on September 19, 2010, nearly five months later.

President Obama also weighed in during a primetime television speech on June 15, 2010 saying, “This oil spill is the worst environmental disaster America has ever faced…[the spill] is like an epidemic, one that we will be fighting for months and even years.”

So when Robinson claimed 90% of the Gulf shoreline now meets agreed upon cleanup standards, the BP executive’s claim seemed surprisingly optimistic.  However, according to RestoreTheGulf.gov, a website sponsored by the Environmental Protection Agency, theGulfCoastshoreline is indeed 90% free and clear of the five million barrels of oil that surged and spread across the Gulf.

By both BP’s and the federal government’s account, the Gulf waters are now safe from a “human, economic, and toxicology point of view.”  That’s good news forFlorida’s four largest Gulf related industries: tourism, seafood, rental properties, and recreational fishing, respectively.

Robinson’s final commitment on behalf of BP was to restoreFlorida’s economic vibrancy to pre-spill status.  The commitment entails interim compensation for businesses, individuals such as fisherman, and state and local governments that lost revenue as a result of the spill and the subsequent cleanup. 

Robinson was quick to point out that BP volunteered the unprecedented amount of money dedicated to the Gulf region’s economic recovery—a trust fund of $20 billion.  The trust fund has also been a point of contention with the White House, Robinson admits.  In his words, Kenneth Feinberg, the government appointed administrator of the BP Victim Compensation Fund, “thinks the $20 billion trust fund belongs to him.”  When pressed for a characterization of BP’s relationship with the White House, Robinson explained that behind closed doors the relationship is positive and productive though publically that’s not always the case.

To date about $7.4 billion of the trust fund has been paid through the five state Gulf regional claims process,  which $2.7 billion has been directed toFlorida.

When asked if the entire $20 billion fund was going to be paid out in full, Robinson stated that his core task is to weigh “the perception of damage versus the real damage” caused by BP’s negligence.  This, he intimated, will take time and is certain to be legally contentious in many cases and is therefore impossible to know at this point.

Currently, 45% of the claims made against BP have been deemed fraudulent or unfounded.  One claim came from a New Yorker citing emotional anguish that stemmed from months of watching news coverage on the spill as grounds for a financial payout.  But the vast majority of claims come from small business owners like Baker Clark, aNavarre, FL, Best Western Hotel owner who has experienced a 50% drop in revenue due to the spill and its lasting perception.  “All I want is to be paid what I should’ve earned,” Baker Clark told the USAToday.

VP Robinson ended the briefing by saying that the claims process will take the time it takes, and as long as BP caused the damage and the claims are approximate both in time and location, then the victims will receive their fair compensation.

BP grossed $297 billion in revenue in 2010 according to its website, but reported a net loss of $3.719 billion for the year.  This year BP is projecting a $21 billion net profit.

Loyola discusses the federal government’s usurpation of state authority to regulate health care, the resultant failure of those interventions and mandates, why health care regulatory authority should be reserved to the states, and a mechanism for rolling back this federal overreach.

“The relentless expansion of the federal government into every area of our lives is incompatible with a Constitution based on local self-government, economic freedom, and shared sovereignty among state, federal, and local authorities. Health care regulation should be returned to the states, along with the tax revenues the federal government sucks away to fund its misguided programs, in order to ultimately lead to accessible and affordable health care for Americans.”

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“Passing the Health Care Compact in Florida” (PDF)

While the legislative reforms of early 2011 made improvements in the Florida Retirement System, further work is needed to keep Florida on the right track and avoid the financial disasters experienced by other states. Five recommendations for further reform include:

• Make the defined contribution/investment plan the default option for new hires who don’t express a preference.
• Limit employees switching between plans to the first year of employment .
• Lengthen the defined benefit/pension plan vesting period to 10 years from 8.
• Increase the employee contribution rate to 4% from 3%.
• Apply the above reforms to municipalities.

View Press Release (PDF)
View Full Brief:
“Pension Reform in Florida: Unfinished Business” (PDF)

For many years the cost of health care in the United States has been rising faster than the rate of inflation. This trend affects families, employers, and governments at all levels — federal, state, and local. The rising cost of care — and of the insurance to pay for it is a major drag on a struggling economy.

Indeed, a new Kaiser Family Foundation report says the annual cost of an average family’s health insurance now exceeds $15,000. For employers who subsidize their workers’ coverage, it’s a cost that inevitably depresses wage growth. Moreover, when a firm’s workload increases, the cost of healthcare coverage is an incentive to cope by extending the hours of existing workers rather than adding new hires.

Some economists argue that inflation in health care is symptomatic of the fact that it’s immune to the market forces — the tug of supply and demand, competition as a moderator of pricing — that typically guide a free economy. Others diagnose the ailment differently, arguing that market forces could work in health care, as in other sectors of a free economy, but government policies have snuffed out the chance.

Whatever chance may have existed for market forces to apply to health care was probably lost with the shift to a system in which “other people” pay the bills. With rare exceptions, medical bills are sent to a third party — a traditional health insurance company, an HMO, or a government program such as Medicare or Medicaid. These entities may use their size to bargain for lower prices, but reducing the revenue derived from patients in some groups often results in cost-shifting and higher prices for others.

Given this assessment, can anything be done to rein in the rising cost of health care? Yes, quite possibly. As this study suggests, there may well be creative steps that states can take to moderate some of the costs that providers must pass along to their patients. Among those costs: malpractice insurance, together with the related costs of “defensive medicine” — the use of diagnostic tests and medical procedures that arguably are not necessary except to mount a defense against being sued for negligence.

States have repeatedly attempted various remedies to address problems related to medical malpractice and defensive medicine — particularly when confronted by crises in which malpractice insurance was said to be in danger of becoming unavailable or unaffordable. The challenge now is to act before another crisis arises.

One factor that must be considered is that Florida’s courts, in general, have frowned upon proposed solutions that infringe on the right of injured patients to seek redress through the tort system. As this study suggests, however, there are alternatives that better serve the interests of aggrieved patients than a tort system utilizing civil courts that are currently burdened by a high volume of other matters, including property foreclosures.

These alternatives, including a “patient compensation system,” could conceivably take less time than the courts to reach a decision and could ultimately direct a greater share of any financial settlement to the aggrieved patient and less to court costs, attorney fees, and other litigation expenses. This study suggests that these alternatives are worth exploring.

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View Executive Summary (PDF)
View Full Study:
“Alternative Solutions to Florida’s Medical Malpractice System” (PDF)

President's Compensation - 2010/11 Fiscal Year

Edison State College President Kenneth Walker announced this week he will resign from his executive position at the southwest Florida former community college after a damaging report released by the Florida Auditor General questioned Walker’s $837,085 annual salary—an amount three times the state limit.

In 2010-11, Walker received a base salary of $322,400 with bonuses and cash equivalents totaling roughly $515,000. In addition, Walker’s contract as district President was set to end June 30, 2014 and included a 12 month sabbatical leave.

In 2010, the Florida Legislature passed a new statute limiting the total compensation of state college presidents to $225,000 annually (including salary, bonuses, and all other compensation except health insurance and retirement benefits). Walker receives the maximum $225,000, an additional $277,705 from a college Auxiliary Fund, and $273,932 from other revenue sources.

So while technically legal, the ethical concern is how Walker’s salary is justified—the central question of the report. Why should Walker receive large payouts from the college auxiliary reserve fund and monies accumulated from other college revenue sources (not expressly identified in the audit) when these resources could be used to lower tuition?

Edison State’s board responded to an initial inquiry from the Auditor General by stating President Walker’s salary was rooted in the board’s “Compensation Philosophy” and is in line with similar state colleges. However, Miami Dade College has over five times as many full-time students and pays its president over $200,000 less.

Since the controversy first broke several deans and senior staffers have resigned and two vice presidents have been dismissed. Governor Rick Scott has also appointed four new board members who are tasked with a detailed review of the Auditor General’s findings. Edison State College will next be visited by a state reaccreditation team.

Walker’s contract was amended two months prior to the effective date of the compensatory limiting statute and he received four significant pay increases in less than three years.

Edison State College is under the general direction and control of the Florida Department of Education and the Division of Florida Colleges.

We understand why it’s common for citizens to give government leaders grief – we do that ourselves from time to time – but we also recognize that public officials often do noble things that go unnoticed and deserve a pat on the back.

For example, last Tuesday, a number of our local officials shared a nice, quiet lunch with 36 area students participating in Youth Leadership Tallahassee’s Government and Education Day (which JMI had the privilege of sponsoring).  

There were no political speeches.  No television cameras.  No votes to gain in next year’s elections – the students aren’t yet old enough to vote – just a friendly conversation at a small table with three or four students eager to learn about the inner workings of government. 

For giving their lunch hour to these high school students, we’d like to recognize Gil Ziffer, Michelle Rehwinkel Vasalinda, Nina Ashenafi Richardson, John Marks, Terry Lewis, and Maggie Lewis-Butler.  We’d also like to recognize several public officials that spoke to the students during the day:  Charles Canady, John Dailey, Kristen Dozier, Marvin Henderson, John Marks, and Alan Williams. 

We appreciate these officials’ service to our community.