Maybe We Never Needed All That Red Tape

Doctors in Illinois. Illinois has waived licensure fees for retired medical practitioners who wish to resume practice. Shutterstock

By Paul Sherman,
The Atlantic

| April 15, 2020

COMMENTARY | Amid a pandemic, states are rethinking rules that never protected consumers in the first place.

Coronavirus

Fourteen years ago this July, I crowded into a gymnasium in Roanoke along with hundreds of other newly minted J.D.s, waiting to take the exam that would determine whether we would be allowed to practice law in the Commonwealth of Virginia. But in the midst of the COVID-19 pandemic, it looks certain that this year’s crop of law-school graduates will be skipping this rite of passage, at least temporarily.

Though the bar exam is traditionally administered in July, the National Conference of Bar Examiners has already scheduled alternative dates for the fall. Meanwhile, a growing number of state bars have declared that they will permit new grads to practice law under the supervision of a licensed attorney until the bar exam can be offered again. Other states are considering waiving the exam requirement entirely for people who complete a term of supervised practice.

All of which raises the question: Was the exam necessary in the first place? In an era of specialization, few lawyers will ever use more than a tiny fraction of the material covered on the bar exam. But, for state bar associations, the exams are a useful way to hold down the number of lawyers.

As the nation’s economy and health-care system struggle to adjust to the pandemic, more and more states are reexamining some of their oldest occupational and business regulations—rules that, although couched as protecting consumers, do far more to limit competition. And for those of us who have long questioned the supposed benefits of these policies, their erosion is welcome, even if the pandemic that caused it is not.

Right now, of course, much of the attention is correctly focused on barriers to work in the health-care industry. Yet here, where the state’s interest in promoting public health and safety is undoubtedly highest, we are seeing some of the most sweeping reforms in decades. While some states have ordered their occupational-licensing boards to speed up the licensure of new health-care practitioners, others—such as Indiana—are granting immediate licensing reciprocity to any practitioner licensed in any state. Even Florida, which has long jealously guarded its occupational-licensing regime to prevent semiretired snowbirds from poaching on the locals’ turf, has gotten in on the act, allowing out-of-state health-care providers to practice telemedicine in the state without a license.

Besides these major changes, states have also begun enacting more modest, but no less welcome, changes to regulations that needlessly stand between doctors and the patients who might benefit from their services. Illinois has waived licensure fees for retired medical practitioners who wish to resume practice. Oklahoma and Massachusetts have eliminated restrictions that required doctors to have a preexisting doctor-patient relationship before they could offer telemedicine services. And Florida—no doubt recognizing the stress we’re all under—has waived the requirement of a physical examination before a doctor may issue a certification for the medical use of marijuana.

But occupational licenses aren’t the only long-established health-care regulations being reconsidered. Also being reexamined are state certificate-of-need, or CON, laws. A product of 1970s-era economic regulation, CON laws require health-care providers to prove that new services are “needed” before they may purchase certain large equipment, open new or expanded facilities, or—as is crucial now—offer home health-care services. Often, these laws give an effective veto power to existing medical providers, allowing them to torpedo new competition for their own benefit.

Here again, the needs of our current situation seem to have exceeded the lobbying power of incumbent health-care providers. Governor Kay Ivey of Alabama has issued an emergency order lifting that state’s CON requirements, allowing health-care providers to add new beds and medical services without first convincing the state they are needed. California, Connecticut, Georgia, Indiana, Michigan, Nebraska, New York, North Carolina, and Virginia have similarly lifted all or part of their state’s CON requirements.

While these changes are all welcome, how they are enacted is as important as their substance. In times of panic, the natural tendency is for government power to expand, and some states have already enacted laws giving state governors near-dictatorial power to waive or suspend legal requirements. But history teaches all too well that such expansions of power are rarely reversed when the crisis that precipitated them abates. So although our current situation requires rapid action, it is both better and safer to make changes through ordinary legislative and rule-making processes.

States that do choose to reexamine occupational licensure won’t lack targets. In the 1950s, only one in 20 American workers needed a license from the government to work in their chosen occupation. Today that number is nearly one in four, and it’s growing. Laws that were once aimed solely at doctors and lawyers now encompass everyone including florists in Louisiana and casket sellers in Oklahoma and interior designers in Florida. As people in lockdown take clippers to their own shaggy hair, they are learning that cuts from unlicensed stylists are not a health hazard—even if the results underscore the wisdom of leaving the job to a market-tested professional.

The consequences of this proliferation are significant. Basic economics predicts that competition reduces prices for consumers, and occupational licensing works directly to stifle competition. The University of Minnesota economist Morris Kleiner, a leading researcher on occupational licensing, estimates that licensing costs consumers nearly $200 billion annually. This might be justifiable if licensing produced substantial improvements in quality, yet most research has failed to find a connection between licensure and service quality or safety. In one study, for example, Kleiner found that the differences in state dental regulations—for instance, whether it was easy or hard for out-of-state dentists to start practicing—had no effect on the dental health of incoming Air Force personnel.

Some of the most profound costs of occupational licensure are felt not by well-paid professionals like doctors and lawyers, but by low- and middle-income workers. When my firm, the Institute for Justice, examined state licensure for 102 low- and middle-income occupations, we found that becoming licensed required, on average, $267 in fees, passage of a state-administered exam, and a year of education or experience. But these requirements can vary wildly from state to state and occupation to occupation. And many occupations are licensed in only a handful of states, being freely practiced throughout the rest of the country with no apparent problems. As a result, workers who have practiced their trade for decades without a license may find themselves ineligible to work in another state where their services are needed.

In 2015, the Obama administration released a study on occupational licensure, concluding that states, when regulating professions through licensing laws, had often failed to consider the costs and benefits. But states no longer have the luxury of ignoring the costs of occupational licensure in health care. When this pandemic ends, states’ reexamination of barriers to work should not, nor should it be limited to a single industry. The licensing reforms being enacted now, though forced upon states by necessity, are not new ideas. They were good ideas before COVID-19, they are good ideas now, and they will be good ideas when this crisis passes.

Paul Sherman is an attorney at the Institute for Justice, which litigates economic-liberty cases nationwide.

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