Rules for Regulators

Rules for Regulators

Regulators should thoroughly consider the potential effects of new rules. But recently, we were reminded of just how far from best practice the federal government operates. The Centers for Medicare and Medicaid Services (CMS) proposed the Medicaid Managed Care rule, a 653-page restructuring of the market in which private insurers compete to offer coverage to particularly vulnerable Medicaid populations.

The proposed rule is a sad reminder of what we've come to expect from CMS — significant market disruption and burdensome costs not recognized in the rulemaking. The problem, however, is not with regulation itself; it's with regulators' failure to follow existing laws and rules because those policies are toothless. Agencies are expected to rigorously analyze the costs and benefits of their actions, and sometimes the process is even made explicit in authorizing statutes. And yet with startling frequency, regulators resort to half-measures, ignore inconvenient findings, or fail to undertake comprehensive analyses of their regulations at all.

One of us has written recently on best practices for developing an effective rulemaking culture across federal agencies and departments, but as part of the American Action Forum's Solutions Initiative, we decided to focus more narrowly on CMS, one of the more egregious regulatory offenders.

CMS has a history of pushing out massive regulations with only the slightest wisp of thoughtful analysis. A recent Mercatus Center analysis found the agency routinely fails to conduct thorough cost-benefit analyses. One of the more outrageous recent examples of poor rulemaking on the part of the agency is last year's Medicare Part D rule. CMS grossly underestimated the regulatory costs, completely ignored major provisions in the proposal that would have driven up Part D spending, and focused its estimates almost exclusively on provisions it claimed would save money. Though the rule was ultimately withdrawn, a rarity and an embarrassment in the regulatory world, the damage to the agency's credibility was done, and that's where our proposal fits.

Regulated entities operate under the penalty of fines, or in some cases jail time, for failure to follow federal regulations. Regulators, on the other hand, play by a different set of rules. They can ignore or willfully disregard guidance from the White House on conducting thorough cost-benefit analyses. Agencies also routinely violate the Paperwork Reduction Act, the Unfunded Mandates Reform Act, and the Congressional Review Act. The penalties for agencies are normally non-existent, aside from an occasional call before Congress to account for these mistakes and violations.

A better solution is to require CMS and other agencies to certify and prepare a detailed analysis, conforming to Office of Management and Budget guidance, of all proposed regulations. Second, agencies should be required to include both direct and indirect foreseeable benefits and costs of rulemaking. This would include likely price hikes that consumers could face from regulation and any job losses. Finally, agencies should be required to publish this analysis for the public to examine and comment. Too often, agencies publish the analysis only after the rule is already final.

To hold CMS's feet to the fire, there should be a strong judicial-reviewcomponent. CMS should already be performing most of the requirements listed above, but there are generally no penalties for noncompliance. If agencies are aware that a federal court is likely to review their work, better analysis — and thus better outcomes — will result.

This proposal is hardly a radical solution. CMS should follow the law and give the public a comprehensive examination of the impacts of its rulemaking. For an agency that affects the lives of hundreds of millions of Americans, it's the least we should expect.

Sam Batkins is director of regulatory policy at the American Action Forum, where Christopher Holt is director of health-care policy and Douglas Holtz-Eakin is president.

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