Excerpted From: Gabriel Scheffler, Unlocking Access to Health Care: A Federalist Approach to Reforming Occupational Licensing, 29 Health Matrix: Journal of Law-Medicine 293 (2019) (313 Footnotes) (Full Document)
Occupational licensing has been enjoying something of a renaissance of late. After a number of years in which scholars and policymakers paid scant attention to licensing, there has been a noticeable surge in government initiatives and scholarly work focused on licensing in recent years. To name a few recent developments: the Senate held a hearing on occupational licensing and antitrust doctrine in 2016; the Federal Trade Commission (FTC) formed an “Economic Liberty Taskforce” in 2017, which has focused in large part on licensing; the Supreme Court in 2015 held that state licensing boards are not automatically immune from federal antitrust scrutiny, leading several states to restructure their licensing systems; both the Trump Administration and the Obama Administration have publicly discussed the harms of licensing; and prominent media outlets, such as the New York Times, the Wall Street Journal, and National Public Radio have featured stories on licensing. This resurgence of interest in licensing is warranted. Recent data suggest that roughly one-quarter of the workforce in the United States is licensed. Workers in licensed professions must obtain permission from the government--generally the state government, though some professions are licensed by the federal government or local governments be granted the legal authority to work in their chosen field. To obtain a license, applicants typically must prove that they meet certain education and training standards, pass an examination, pay a fee to the licensing board, and fulfill other administrative requirements.
A growing body of empirical research finds that the current licensure system imposes substantial economic burdens on workers and consumers. Most licensing restrictions are set not by disinterested regulators, but rather by members of licensed professions who have an economic incentive to erect regulatory barriers that limit competition and deliver “economic rents”-- profits that exceed what would exist in a competitive market. Licensing results in higher wages for licensed workers, but reduces employment and wages for unlicensed workers, creates higher prices for consumers, and limits access to services. Empirical research also strongly suggests that licensing reduces geographic mobility. Workers in licensed professions typically must be licensed in each state in which they practice, and states often impose varying requirements to obtain and maintain a license, making it more difficult for workers to relocate from one state to another. These costs are disproportionately borne by certain groups, such as immigrants and individuals with criminal records.
One important problem with the current licensure system that has received less attention is that it impedes access to health care. Although licensing requirements for health care providers are widely viewed as necessary to protect public safety, several features of the licensure system obstruct access to health care while doing little to ensure quality. For instance, licensing restrictions prevent health care providers such as nurse practitioners from offering services to the full extent of their competency, obstruct the adoption of telehealth by often requiring that health care providers be separately licensed in each state in which their patients are located, and deter foreign-trained providers from practicing in the United States by requiring them to complete costly often duplicative training and testing.
Despite criticism of this system, the United States licensing regime has proven to be remarkably resistant to change. One reason for this is interest group politics: many of the benefits of licensure accrue to the licensed professionals who make up these organizations, while its costs are dispersed broadly across the population. Yet the story is more complicated than that: licensing is also often viewed as a signal of the prestige and value of a profession, so many licensed professionals regard efforts to reform licensing as attacks on their profession's worth. These dynamics have led some scholars to conclude that the political process is incapable of reforming licensing, and that litigation is the only viable option.
This article shows that while these barriers are formidable, they are not insuperable. In recent years, the federal government has taken a number of initial steps aimed at improving access to health care by reforming licensing restrictions for health care providers. For instance, the federal government has recently eased licensing restrictions for health care providers in certain areas where it already possesses regulatory authority, created incentives for states and professional bodies to experiment with reforms, intensified its focus on licensing boards' anti-competitive conduct, and created additional pressure for state-level reforms through expanding health insurance and promoting delivery system reforms under the Affordable Care Act (ACA).
Together, these steps represent a federalist approach to licensing reform, in which the federal government incentivizes states to change their licensing laws, while largely preserving states' control over their licensing regimes. Although these measures are limited, they demonstrate that the federal government is capable of reforming licensing, and together they pave a path toward improving access to health care. They also illustrate the range of tools the federal government has at its disposal to reform the licensing system, short of simply preempting state law.
Describing an approach in which the federal government intrudes onto a traditional area of state sovereignty as “federalist” may appear to be a misnomer. Yet the traditional notion of “dual federalism,” in which the federal government and states have completely separate spheres of authority and do not coordinate with one another, is no longer as relevant today when “Congress's lawmaking reach ... is now essentially unlimited with respect to the areas into which federal statutory power can go.” Rather, as argued by Professor Abbe Gluck, federalism today--“in the sense of state power, relevance, autonomy, and sovereignty--mostly comes and goes at Congress's pleasure.” This new brand of federalism, which Gluck has labeled “intrastatutory federalism” or “national federalism,” stems specifically from Congress's decisions to delegate the administration of federal schemes to the states. This notion of federalism--which this article hereafter will refer to simply as “federalism”--is expansive, and encompasses a range of distinct federal-state arrangements.
In applying this federalist framework to the specific context of occupational licensing, this paper explores how it can be used to overcome the institutional and political economy factors that have served to entrench the problems in the existing regulatory apparatus. This emphasis differs from that of Gluck, who focuses on how state administration of federal law can both serve national ends and effectuate traditional federalist values, as well as on the implications of these arrangements for legal doctrine. It also is distinct from much of the existing literature on federalism and public choice, which tends to focus on questions of how--and to what extent--federalism doctrine should incorporate public choice theory and on how public choice dynamics support or undermine potential justifications for federal intervention.
The article shows that this federalist approach is more feasible than two alternatives: either appealing to state governments to reform their own licensing regimes, or alternatively, calling on the federal government to simply preempt state licensing laws. Proposals in the first category (dual federalist proposals) appeal to state governments to restructure their licensing regimes, but often do not acknowledge states' lack of incentives to enact sufficient reforms. By contrast, proposals in the second category advocate that the federal government should step in and preempt large swaths of state law, but they do not take into account the institutional and political challenges involved in such an approach.
This article evaluates both of these approaches and concludes that they are implausible and that federalism represents the best path toward reforming licensing. Some amount of federal intervention is necessary because states lack the incentives to experiment with large-scale licensing reforms on their own; each state's licensing laws impose externalities on the citizens of other states and on the national labor market; and states face collective action problems. Although this might seem to support federal preemption, a federalist approach is in fact more viable: it is more flexible and capable of overcoming interest group opposition and it obviates Congress's historical unwillingness to repeal large areas of state law. Moreover, a federalist approach has important functional advantages over full-scale federal preemption, including encouraging experimentation in the face of policy uncertainty and making use of states' administrative experience.
A federalist approach is not only theoretically viable, but also the federal government has already begun to adopt such an approach--albeit in an ad hoc limited fashion. Even these limited steps have the potential to improve access to health care, if recognized and scaled up. Yet some of these federal actions, and the ways in which they have begun to influence licensing requirements for health care providers, have hitherto largely gone unrecognized.
Although this article focuses specifically on licensing requirements for health care providers, the analyses and conclusions in this paper are relevant for other areas of licensing, as well as for other kinds of state regulation that also deliver economic rents and have nationwide economic externalities. There is a growing recognition among researchers and policymakers that state and local regulatory policies on subjects such as occupational licensing, land-use regulation, and non-compete agreements have important economic implications for the United States as a whole. For instance, according to one study, stringent land use regulations in “high productivity” cities like New York and San Francisco lowered overall US growth by thirty-six percent from 1964 to 2009. Other research suggests that land-use regulations have played an important role in the rise of economic inequality. This article provides a general framework for how policymakers can address these issues, and explores some of the specific tools that the federal government has at its disposal to affect state regulation, short of outright preemption.
This article proceeds in four parts. Part I provides a brief overview of the occupational licensing system in the United States, including states' legal authority to license workers, and their history of doing so. Part II explores some of the problems with this system, in particular focusing on how licensing requirements for health care providers serve to impede access to health care. Part III examines several recent steps that the federal government has taken to reform licensing restrictions for health care providers which illustrate a federalist approach to licensing reform. Part IV compares the federalist approach to alternative proposals that either rely primarily on state-level reforms or call for federal preemption, and concludes that these alternative approaches are inadequate. It evaluates the justifications for federal intervention and outlines several practical and normative advantages of this federalist approach over full-scale federal preemption.
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This article presents a model for how the federal government can encourage states to reform the current system of occupational licensing for health care providers, and argues that such an approach would be more viable than either leaving licensing to the states or advocating for outright federal preemption. Although this paper focuses primarily on occupational licensing in health care, it also suggests that a federalist model could be used to change the licensing systems governing other fields as well.
Of course, that is not to say that affecting widespread change in our licensing system will be easy or quick. The licensing system in the United States has proven remarkably intractable since its inception, and any change will likely have to be incremental. Nearly half a century ago, in their study of occupational licensing, Benjamin Shimberg, Barbara F. Esser, and Daniel H. Kruger sketched out some of the challenges entailed in reforming the licensing system:
[T]he whole institution of occupational licensing is embedded in a morass of federal, state, and local legislation suffused with tradition, custom, and jealously guarded rights. There are clearly no simple solutions. To bring about change would involve not only modifications of hundreds of state laws and local ordinances but also negotiations among dozens of occupational interest groups that have, over the years, managed to achieve some sort of delicate balance within the existing structure. The possibility of change, even relatively minor change, is likely to be perceived as a threat by those who gain not only prestige but also tangible economic benefits from the existing structure. Anyone contemplating change must consider not only its operational aspects, such as amending existing legislation or modifying procedures, but also its psychological aspects--the way people perceive or respond to the proposed changes. It is probably best to think of modifications in licensing as an ongoing process--a spiral moving upward from one level to the next--that will not necessarily be accomplished in one, two, or even five years.
Despite the promise of recent developments and the resurgence of interest in licensing, this cautionary advice seems just as applicable today. Any large-scale change will require a strong and sustained commitment on behalf of the federal government, and will likely take place over a long period of time.
Nevertheless, this article provides some reasons for optimism. It shows that the federal government has a range of tools at its disposal to encourage states to reform their licensing regimes, that it has already taken some initial steps to encourage states to restructure their licensing requirements for health care providers specifically, and that even these limited measures have had tangible impacts on states' licensing regimes and in turn have the potential to improve access to health care.
This lesson is especially important today, as there is a growing appreciation of the important consequences that state and local regulations have for national issues such as health care, the labor market, and geographic mobility. Many scholars and policymakers grappling with these interactions have continued to view state and local regulatory policy through a dual federalist framework: either advocating for states to reform their own regulations, or alternatively, calling for large-scale federal preemption. By contrast, this article shows that at least in some contexts, a federalist solution may be the most realistic and normatively desirable solution, and that there is promising precedent for such an approach.
Regulation Fellow, Penn Program on Regulation, University of Pennsylvania Law School; Research Fellow, Solomon Center for Health Law and Policy, Yale Law School.