Category Archives: Regulation

With Health Care Premiums Up 14%, Virginia Should Act

Lasik eye surgery . Eww, it looks gross. But it's cheap, it's safe and it's unregulated and unsubsidized.

Lasik eye surgery . Eww, it looks gross. But it’s cheap, it’s safe and it’s unregulated and unsubsidized.

by James A. Bacon

Insurance companies participating in Virginia’s Affordable Care Act health exchanges are asking to increase rates by an average of 14% next year. In making presentations to the State Corporation Commission yesterday, they said the increases reflect (1) general health care inflation that affects everyone, and (2) and an imbalance in sick versus healthy participants in the plans.

Under state law, the SCC is required to review and approve premium rates for all types of health plans, reports Katie Demeria with the Richmond Times-Dispatch. If an insurance company’s rate filing has met the state’s minimum loss ratio requirements and all assumptions are defensible from an actuarial perspective, it is virtually impossible to turn down the rate-hike request.

“Some of these rate increases are more than what people would want and, in some cases, could be more than what some people would bear,” said Commissioner Mark Christie. “But we also have an obligation to ensure that these companies remain in business so that the can pay the claims they’re obligated to pay by the people who pay their premiums.”

Bacon’s bottom line: There is not much that the Commonwealth can do about the imbalance between sick and healthy participants. The Affordable Care Act (widely known as Obamacare) anticipated the problem by taxing people who fail to enroll. The incentive, as stiff as it is, is not sufficient to induce as many healthy people to enroll as are needed. This design flaw in the federal legislation is beyond the power of Virginia lawmakers to fix.

But the General Assembly does influence how health care markets operate in Virginia, and lawmakers can affect the general cost of delivering health care. Not only do legislators have a political responsibility, they have a moral responsibility to create the conditions for Virginia health care markets to become more affordable and accessible.

Existing state-level laws and regulations muck up the efficient functioning of health care in many ways. First and foremost is the Certificate of Public Need (COPN) law that thwarts competition from newcomers and ossifies the existing delivery system in place. Legislators are on top of that one, and they’re not letting go.

But there are many other areas that need reform. The most glaring is state-mandated benefits for small-group insurance policies. Employers big enough to self-insure can structure their policies packages any way they want. Small employers who have to band together to create a viable risk pool don’t have that option. Insurers must package some 30 state-mandated benefits into their policies, whether those benefits are desired or not. These include everything from “newborn children” to “reconstructive breast surgery” and “colorectal cancer screenings.”

While any one of these benefits may not seem unreasonable in itself, the collective package severely limits the ability of insurers to offer affordable, trimmed-down plans. For example, one plan that I think would sell well (because I would buy it) would have two main features: (1) negotiated rates so I don’t have to pay the outrageous nominal fees that hospitals and doctors charge, and (2) catastrophic coverage if medical bills exceed, say, $20,000 in a year. In other words, I would pay all bills out of pocket up to $20,000 but at negotiated, discounted rates, and I would be protected from catastrophic loss. Such a plan, as I understand it, is illegal. That’s why you cannot find it in the Virginia marketplace.

A third way the state could help is increase price transparency so patients can exert consumer pressure on health providers for discretionary procedures. Consumer pressure has kept down the cost of Lasik eye surgery and cosmetic surgery, which are not regulated or funded by government. Consumers could exert downward pressure on many other procedures as well if they had easy access to the price data.

There’s much more, but those are the big three. As a nation and a state, we can continue to fixate on the zero-sum question of “who pays?” — transferring wealth from Peter to Paul — or the win-win question of how we make the system function better for everyone. The wealth-redistribution approach has not worked well for anyone. It’s time to try win-win.

Republicans and Leftists Are Outraged, Outraged, I Tell You

Nishizaki Sakurako and Bando Kotji in "Yoshino Mountain"by James A. Bacon

Here’s what I missed in yesterday’s quickie post about Governor Terry McAuliffe’s plan to convene a clean energy task force: Both Republicans and leftist environmental groups are attacking the move, though for opposite reasons.

Republican legislators see the initiative as an end run around the state budget, which specifically prohibits any spending on the federal Clean Power Plan for reducing CO2 emissions from electric power plants while it is being challenged in the U.S. Supreme Court. Normally, such accusations strike me as political blather, but Brian Coy, a spokesman for the governor’s office, confirmed that that was precisely the motive. Here’s how the Washington Post summed up his statement: “The governor did not create the work group to assuage environmental groups but rather as a way to dodge the Republican-controlled General Assembly.”

House Speaker William J. Howell, R-Stafford, was not pleased: As quoted by the Richmond Times-Dispatch, he said: “This order is another deliberate attempt to circumvent the legislature and the will of Virginia voters.  The governor is developing a troubling tendency to prefer Washington-style executive action instead of the dialogue and collaboration that Virginians expect and deserve.”

Meanwhile, McAuliffe’s initiative was belittled from the left, who cited his support for the Atlantic Coast Pipeline and Mountain Valley Pipeline, which would supply natural gas to Virginia and other Southeastern markets, as evidence that he is not serious about combating climate change. A joint statement by the Virginia Student Environmental Coalition, the Chesapeake Climate Action Network, and Virginia Organizing called McAuliffe’s initiative “a minor environmental policy” dwarfed by the harm of natural gas transportation and combustion.

The kinds words came from mainstream environmental groups who have been working through the administration to implement the strictest of the Clean Power Plan alternatives available to the state.

The governor is trying to reconcile his desire to combat climate change with his priority of creating jobs. Thus, he defends construction of two natural gas pipelines through the state on the grounds that they will create economic opportunity for the Tidewater region of the state, which is effectively precluded from competing for important categories of industrial expansion due to an insufficient supply of natural gas. At the same time, he has supported the federal Clean Power Plan (CPP), which seeks to curtail CO2 emissions from Virginia power plants. If the CPP passes legal muster, the Department of Environmental Quality (DEQ) will be charged from choosing from one of four broad approaches for the state to implement the plan. Environmentalists favor the option that would curtail CO2 emissions the most, although industry consumer groups worry the approach would drive up electric rates. McAuliffe has not yet endorsed an option.

Bacon’s bottom line: I’m still not sure what the fuss is all about. McAuliffe has already enacted a series of measures driving state government to pursue energy efficiency goals and to purchase solar energy. There is not much else that he can legally do. This new working group can recommend anything it wants, but it won’t have power to spend a dime. Meanwhile, the big action revolves around the Clean Power Plan. If the Supreme Court upholds its constitutionality, the focus turns to the already-instated DEQ working group to recommend how to implement it. If the Supremes nix the CPP, regulatory decision-making effectively reverts to the State Corporation Commission, which responds to legislative guidance enacted into law, not to gubernatorial directives.

I regard this whole hoo-ha as political theater — a kabuki production in which the actors rigidly play out their assigned roles.

Sierra Club’s Coal Ash Gambit

Coal ash pond at the Chesapeake Energy Center

Coal ash pond at the Chesapeake Energy Center

by James A. Bacon

The Sierra Club has filed a lawsuit charging that coal ash stored at Dominion Virginia Power’s shuttered coal plant in Chesapeake is leaking arsenic into the Elizabeth River. The environmental organization wants the U.S. courts to compel Dominion to scrap plans for burying the coal ash in place at four power stations around the state and to truck the material to lined landfills instead.

Earlier today, attorneys for the environmental group began presenting their case in the Richmond courtroom of U.S. District Court Judge John A. Gibney, advancing the argument that unsafe levels of arsenic found in sediment samples originated from underground water that migrated through the coal ash pits.

“These discharges of arsenic will continue indefinitely with no end in sight,” said Deborah Murray, the attorney representing the Sierra Club. “The only way to stop the pollution is to remove the ash to a lined landfill.”

Dominion countered that the Sierra Club’s arguments are totally unproven. The organization cherry picked “snippets” from the voluminous testing data filed with Virginia’s Department of Environmental Quality (DEQ), wore “blinders” to the mountain of evidence showing that water quality complies with the law, and offered a “tortured interpretation” of how the arsenic got from the coal ash to the surrounding waters, argued Dabney Carr for Dominion.

DEQ has consistently found Dominion to be in compliance over four decades, said Carr. “The goal of this suit is to overturn DEQ’s decision,” he added, addressing the judge. “The Sierra Club is asking you to substitute your judgment for the DEQ’s judgment.”

Dominion has been accumulating coal ash, the mineral residue from coal combustion, at the Chesapeake Energy Center for decades. Like other utilities, the company mixed it with water to keep the dust down and stored the material in lagoons. After years of study, the Environmental Protection Agency issued new standards last year for cleaning up coal ash. The first step is to de-water the ash, treat the water, and discharge it into rivers and streams. For the most part, Dominion has reached agreement with DEQ and environmental groups on how to do that.

The second step is to store the coal ash in a place where it will not continue to contaminate water supplies. Dominion proposes to consolidate the residue and cap it with an impermeable lining to prevent the infiltration of rain water. DEQ is studying those permits now.

Contending that a cap does nothing to stop the infiltration of groundwater, environmental groups have pushed Dominion to truck the material to lined landfills — a project that Dominion estimates would cost $3 billion. While some environmental groups focus their efforts on DEQ, the Sierra Club is going the federal route. The organization believes the lawsuit against Dominion is the first challenge of its kind to the Clean Water Act. If the group wins the case, it will set a precedent not only for all four of Dominion’s coal ash sites but for power companies across the country.

While the implications are national, the facts of the case are highly localized. And, as was clear from Murray’s presentation, Sierra Club’s case is circumstantial.

The Chesapeake facility sits upon land comprised of loose and sandy soils that allow water to travel through easily. The coal ash ranges from 15 to 30 feet thick, and the bottom of the pile varies in elevation from 16 feet above sea level to six feet below. A liner was placed between the disposal site and the ground but it is leaking, Murray said.

However, when asked by Judge Gibney how she knew the liner was leaking, she had no persuasive response.

The key evidence presented for the accumulation of arsenic came from a 2010 report commissioned by Dominion that analyzed sediment “cores” — cylindrical-shaped samples of creek and river bottom — to determine if there was “natural attenuation” of arsenic. (Natural attenuation is when nature takes care of the problem, in this case by binding the arsenic with iron to form a harmless substance.) Five of the samples at a depth of zero to three inches contained arsenic in excess of the permitted level of 36 micrograms per liter.

The Sierra Club cherry picked these data points from mountains of data collected from samples taken twice a year over decades, countered Carr. All tests of surface water, as opposed to sediment, have indicated arsenic levels at concentrations well below drinking water standards. Every water sample — 73 taken over the past thirteen years — were well below Virginia and EPA water quality standards for arsenic. Said Carr: “There is no evidence of arsenic in the surface waters.”

Where did the arsenic in the sediment come from if not from the nearby coal ash pits? Dozens of other industries release discharges in the Elizabeth River, said Carr, and some are known to release arsenic. The Sierra Club has offered no proof that the arsenic levels in found in the sediment differs from those elsewhere in the river. The group has conducted none of its own research and offers no additional evidence. It relied entirely upon data that DEQ used to find Dominion in compliance with the Clean Water Act — “the very same data and information DEQ has relied upon to conclude that Dominion is in compliance with its permit at CEC (the Chesapeake Energy Center).”

Maryland Drops Coal Ash Appeal

The coal ash ponds at Possum Point

The coal ash ponds at Possum Point

The state of Maryland has dropped its appeal of permits granted to Dominion Virginia Power for discharging treated water from its Possum Point Power Station coal ash ponds into Quantico Creek and the Potomac River.

“Maryland is supportive of recent agreements in Virginia to increase wastewater treatment protections and monitoring protocols,” Ben Grumbles, Maryland’s secretary of the environment, said in a statement. “We are engaged in and encouraged by the ongoing discussions with Virginia and Dominion to do even more testing for fish tissue, water quality and sediment in the river beyond the current testing and monitoring in current or soon-to-be-proposed permits.”

Jay Apperson, a spokesman for the department, cited Dominion’s commitments to enhanced treatment of the water drawn from coal ash ponds and to specifications that meet or exceed Maryland’s water quality standards, reports the Richmond Times-Dispatch. He continued:

Moreover, Virginia DEQ has pledged to draft a stringent and comprehensive solid waste permit for the Dominion facility that incorporates all federal requirements. Virginia DEQ has further discussed its intent to engage Maryland during this permitting process as groundwater monitoring and surface water monitoring safeguards are included to protect Quantico Creek and the Potomac River.

The only group persisting in an appeal of the coal ash water-discharge permits is the Potomac Riverkeeper Network.

Bacon’s bottom line: The big remaining issue is how Dominion will dispose of the coal ash itself. Dominion has applied for permits to consolidate the material in capped pits on-site, asserting that the alternative preferred by environmentalists — trucking it to lined landfills — would cost $3 billion more. The statements from Maryland’s Department of the Environment suggests that Maryland has taken part in intensive, behind-the-scenes negotiations with Virginia DEQ, as Virginia regulators decide whether to grant the solid waste permits or not.

— JAB

Virginia Procurement Process Needs Reform

Complex projects from transportation to IT need risk management.

Complex projects from transportation to IT need risk management.

by James A. Bacon

The Commonwealth of Virginia needs to reform its procedures for contracting and administering billions of dollars of contracts, the Joint Legislative Audit and Review Commission (JLARC) has found in a new study.

In 2015 Virginia spent more than $6 billion through contracts, including for transportation projects, information technology, and building construction, noted JLARC. The process for managing the contracts is decentralized, with each agency handling its own work. State procurement staff are insufficiently schooled in risk management, and the state pays insufficient attention to monitoring and enforcing the contracts.

Even though contracts account for a significant portion of state spending, the state does not maintain comprehensive information on how contracts are performing. This prevents individual agencies and state-level decision makers from assessing whether their investments in individual contracts have provided value to the state. It also prevents agency staff from avoiding problematic vendors and developing and administering contracts in a way that takes into account previous “lessons learned” at their own agency or other agencies.

JLARC embarked upon the study in 2014 after the maladministration of the U.S. 460 superhighway project resulted in a $250 million loss to the state without any ground being cleared or asphalt laid. The state has been embroiled in other high–profile contractual disputes involving the provision of IT services and the explosion of a rocket at the Wallop’s Island space port.

“Risk management isn’t on the radar,” said Tracey Smith, study project leader, in a presentation to lawmakers Monday. Writes Michael Martz in the Richmond Times-Dispatch:

Legislators on the commission, particularly the lawyers, expressed shock that state agencies routinely enter into big, often risky contracts without legal advice from the Attorney General’s Office.

Del. David B. Albo, R-Fairfax, chairman of the House Courts of Justice Committee, called it “ludicrous” that agencies would draft major contracts without lawyers.

Bacon’s bottom line: State procurement laws reformed corrupt practices of an era in which politicians routinely gave contracts to their friends and supporters. The laws emphasized putting contracts out for competitive bids, procuring the lowest price and making the process transparent. The nature of business has changed over the decades, but with one important exception, the state procurement process has not kept pace.

Unless you’re procuring commodity products like office supplies or janitorial services, the lowest price is almost meaningless. The quality of work is often a critical but hard-to-define variable. Another is the allocation of risk — who pays when something goes wrong? Identifying and allocating risk is why we have lawyers. Sometimes the lawyers get carried away, picking at nits, but they perform a critical business function because things often do go wrong. Accidents occur. Disagreement arise. Unanticipated events throw everyone for a loop.

Government employees are not trained to think about risk. Politicians aren’t inclined to worry about risks that might explode on someone else’s watch.But as contracts grow increasingly complex with the trends to outsourcing and public-private partnerships, the allocation of risk can be as important as the price.

There is one outfit in state government that has been acquiring the competencies to engage in sophisticated risk management — the Office of Public-Private Partnerships (OP3), which oversees contracts for some of the state’s most complex transportation projects. As I recall, OP3 raised red flags relating to the infamous U.S. 460 project but its warnings were overruled for political reasons. The office has developed a network of contacts it can call upon to supplement the skills of its in-house staff. Virginia’s Secretary of Technology and the head of the Department of General Services should have comparable capabilities.

Good management doesn’t excite the electorate like, say, banning guns or restricting bathroom options for transexuals. But billions of taxpayer dollars are at stake. And that makes it a sexy topic for me.

Coal Ash, Parts Per Billion, and Risk

PP_coal_ash

Coal ash ponds at Possum Point before Dominion Virginia Power started draining the ponds and consolidating the coal ash.

Kudos to Robert Zullo with the Richmond Times-Dispatch for digging beneath the dueling press releases to shed light on the contamination risks that coal ash ponds pose to drinking water. Focusing on the carcinogenic chemical hexavalent chromium, which has been detected in well water near Dominion Virginia Power’s Possum Point Power Station, he broaches key questions: How much of the chemical is too much? What level should the state permit?

Other questions he touched upon in passing: If hexavalent chromium exists in well water, how did it get there? Did it come from the coal ash ponds, or does it occur naturally in minute quantities?

The Environmental Protection Agency (EPA) sets a drinking-water standard of 100 parts per billion for chromium, which Virginia’s Department of Environmental Quality (DEQ) has adopted as its own standard. However, hexavalent chromium is widely regarded as a more dangerous version of the metal. California has set a separate limit of 10 parts per billion for drinking water for that compound, Zullo reports, reflecting a balance between health risks and the cost to water utilities of meeting the level.

Dealing with its own coal ash problem, the state of North Carolina conducted tests last year of well water within 1,500 feet of coal ash basins, using a standard of 0.07 parts per billion, which it determined was associated with a “potential one-in-a-million cancer risk for an average person drinking this water over an average lifetime.” Tarheel regulators issued several hundred “do not drink” letters to private well owners last year. Critics contended that the 0.07 parts-per-billion level was so strict that even municipal water systems could not meet it, and the state reversed course, telling residents that their well water was “just as safe as the majority of public water supplies in the country.”

The issue surfaced in Virginia when DEQ tested seven private wells near Possum Point and found hexavalent chromium in one — 5 parts per billion, right at the state’s reporting limit. The Southern Environmental Law Center (SELC) commissioned other tests and found another house where the chemical was found at a 1.2 parts-per-billion level.

SELC argues that DEQ should use testing methods that identify the chemical at levels lower than its 5 parts-per-billion standard. Said Greg Buppert, an SELC attorney: “This is a human carcinogen and we should be looking at it at lower concentrations, because we know it’s a concern.”

Bacon’s bottom line: What we’re talking about here is measuring minutes quantities of hexavalent chromium and parsing minute risks. From my (admittedly primitive) understanding, there is no known level above which a given chemical in the drinking water is dangerous and below which it is “safe.” We’re dealing with a continuum in which the statistical risk diminishes with smaller concentrations of the chemical. North Carolina’s level of 0.07 poses a risk of one-in-a-million people getting cancer after a lifetime of drinking the water. That’s crazily low. Even if hundreds of households drank the well water for years, the odds are remote that a single person would get cancer from the chemical.

One must balance that against the cost of eliminating that risk, which in Dominion’s service territory could approach $3 billion. If Virginia rate payers kept that money, what would they do with the money? Presumably, they would spend it on other things. Sure, they might buy a bigger house or purchase more movie tickets. But they also might purchase safer cars, have more frequent medical check-ups, eat healthier food, or join a health club. When we take money from people, whether through taxes or regulation, we fail to take into account the fact that we deprive them of the means to mitigate every-day risks to their health and safety.

Life is full of risks but we as a society say we can live with them. The Virginian-Pilot reports today on a fluke accident in which a beach umbrella on Virginia Beach was blown loose from its moorings in the sand and struck a woman, killing her. Should we ban beach umbrellas to offset the risk of umbrella impalements?

On the other hand, Virginia’s legal limit for hexavalent chromium is more than 100 times North Carolina’s one-in-a-million level. Assuming a straight-line correlation between the hexavalent chromium level and the risk it poses, that implies a one-in-ten-thousand risk or greater for Virginians drinking contaminated well water. That sounds like enough risk to justify having a conversation. Continue reading

Siding with the Least Greedy Bastard

Tesla Model S -- roughly $30,000 in subsidies per car sold.

Tesla Model S — roughly $30,000 in subsidies per car sold.

by James A. Bacon

Elon Musk has a gift for spinning fabulous visions involving super-cool technology — everything from solar energy and rocket ships to high-speed rail and electric cars. But he has also mastered the art of scrounging money from government. According to a year-old Los Angeles Times article, his enterprises had racked up some $4.9 billion in government subsidies.

So it is with mixed feelings that I read that Tesla is applying to open a second store in Virginia, this one in the Richmond area, against the opposition of the Virginia Automobile Dealers Association. The auto dealers fought Tesla’s application to open a store in Fairfax a couple of years ago on the grounds that long-standing state law prohibits automobile manufacturers from owning dealerships in most cases. Musk won that round — I’m not sure upon what grounds — and now he hopes to win again.

Whom does one root for — the big, fat, out-of-state crony capitalist or Virginia’s little, skinny home-grown crony capitalists?

On the one hand, I oppose laws prohibiting auto manufacturers from selling their own cars directly. Such restrictions benefit a select class of multimillionaires — local auto dealers — from competition, probably at the expense of the consumer. Therefore, I think, let Musk open his second Tesla store.

On the other hand, I think, dude, haven’t you benefited enough from manipulating the government? Isn’t $4.9 billion enough? Back away from the trough and leave something for the smaller piglets! Writes Phil Kerpen in National Review:

Every time a Tesla is sold, we witness a transfer of wealth to a rich hobbyist (most Teslas are their owners’ third or fourth car), while average Americans are on the hook for at least $30,000 in federal and state subsidies. Tesla is more a regulatory arbitrageur than an auto manufacturer.

This increasingly represents how the U.S. economy is organized. There are so many subsidies, tax breaks, regulations and exemptions that almost every business benefits from government-provided preferences somehow. If a company doesn’t work the system, then some predator will come along with its lawyers and lobbyists and campaign contributions and put it out of business. You’ve got to lawyer up just to stay alive.

In such a world, I suppose my sympathies go to the least greedy bastards who fleece me the least, whose kid goes to school with my kid, who supports the same local causes that I support, and who circulates his wealth in the local economy, patronizing local law firms, advertising agencies and the like. I suppose I root for the automobile dealers…. although I do so with little enthusiasm.