Discussion: (0 comments)
There are no comments available.
View related content: Health Care
In a recent speech to several hundred legislators and state health officers, Secretary Sebelius categorically asserted “this is not a bait-and-switch.” She was referring to the federal government’s commitment to funding 90% of the Medicaid expansion in perpetuity. There is widespread fear among the states that Uncle Sam will renege on this promise, leaving them holding the bag for whatever amounts federal policymakers decide can no longer be afforded. As a former Kansas legislator, insurance commissioner and governor, Secretary Sebelius presumably knows that she cannot bind the hands of a future Congress—either constitutionally, legally or even morally. The members of such a Congress are quite free to make their own determination of whether their counterparts in 2010 (all Democrats as it turns out) made a reckless and foolish promise that wholly lacked credibility in light of the country’s $230 trillion in debts and unfunded liabilities at the time of passage and quite free to unburden future generations from that obligation if they so desire.
As CBS News reported, Secretary Sebelius had more to say:
“This is no longer a political debate; this is what we call the law,” Sebelius told a group that includes Democrats and Republicans, elected officials, political appointees and bureaucrats. “It was passed and signed three years ago. It was upheld by the Supreme Court a year ago. The president was re-elected. This is the law of the land.”
The reality is that the law being implemented is transparently not the law of the land that was passed by Congress in 2010. Indeed, it is quite debatable whether the law as it is being implemented could possibly have passed either the Congress of March 2010 or any subsequent Congress to date. I’m not a congressional historian, so I can’t claim this is the biggest bait-and-switch ploy ever foisted upon the American public in the history of our country. But if it is not, I would welcome being educated on anything remotely comparable in magnitude.
The Supreme Court Rewrote the Law in 2012
We need not resolve whether persistent hectoring of the Supreme Court by the President and Democrats in Congress in advance of last year’s decision was the principal factor behind Chief Justice Roberts’ convoluted decision. Regardless of his underlying motivation, what the Chief Justice ended up doing was essentially re-writing two key components of the law. A majority of the Court concurred that the individual mandate provision stretched the Commerce Clause too far. But rather than striking down the law to let Congress address this knotty problem, Justice Roberts instead concluded that the mandate was a tax (even though Congress and the President repeatedly insisted it was not), thereby saving the law (even while tarnishing the Court’s reputation in the eyes of the public).
Likewise, as written, the law stated that any state which did not accept the new Medicaid expansion would forfeit all of its existing federal Medicaid funds (not just the funds related to the expansion). This draconian provision would have required states to be willing to see their state budgets slashed by more than one seventh on average—or, in some states, by nearly one-fifth—in order to stand up to Uncle Sam’s bullying. Put another way, by rejecting the Medicaid expansion—and assuming the state replaced every federal Medicaid dollar lost with a state dollar–the average state would have seen its Medicaid burden (state Medicaid dollars per resident) more than triple between 2011 and 2019. The Court understandably viewed this as unconstitutionally coercive. However, rather than striking this provision and sending the law back to Congress to fix, the Court rewrote it, allowing states to opt out of expansion without losing their current federal Medicaid subsidy.
Dealing with the law so cavalierly has been hugely consequential. Treating the individual mandate as a tax effectively has liberated millions of young people to view the individual mandate in strict cost-benefit terms. Whether they opt to purchase coverage or pay the tax, they will be obeying the law and won’t have to lose sleep at night over whether they are “law-breakers.” Consequently, many more will opt to pay the extremely modest tax rather than fork over many thousands of dollars to purchase coverage that became substantially more expensive for young people thanks to the misguided pricing rules imposed by Obamacare. The risk that the law will fail in an “adverse selection death spiral” thus has gotten much larger.
Likewise, now that Medicaid expansion has become optional rather than mandatory as Congress originally intended, fewer than half the states are moving forward with expansion. That exposes yet another bizarre provision of Obamacare: the fact that no one below poverty is eligible for subsidized private health insurance on the exchanges. Thus, a family at 50% of poverty in one of the 26 states not moving ahead with Medicaid expansion will be ineligible for subsidized coverage whereas their counterpart with twice the income will be eligible for subsidies in excess in of $18,000! In fairness, this counterintuitive structure made logical sense in Congress’s original conception of how the law would work. After all, if every state could be arm-twisted into accepting a Medicaid expansion that would give Medicaid coverage to everyone below poverty, there would be no need for exchange subsidies for this same group (heaven forbid that poor people be given private coverage vastly superior to Medicaid, but that’s another story). Indeed the threat that poor people could not qualify for subsidized exchange coverage was viewed as an important component of that arm-twisting in the first place. But now that the Supreme Court has unraveled Congress’s well-intentioned (albeit unconstitutional) plan, we are now speeding towards a very unpleasant world in which a) there will be rather sizable pressures on poor families to commit tax fraud to get heavily subsidized coverage on the exchanges; b) there will be gross and completely indefensible inequities between how families below poverty and just above poverty are treated within the same state; as well as c) gross and completely indefensible inequities between how families below poverty are treated across states. This is why Americans would have been far better served had the Supreme Court sent Congress back to the drawing board to figure out how to redesign the health law in light of the Court’s illumination of the boundaries of what was constitutionally permissible. Of equal importance, once the Court issued its misguided decision, a far more sensible course of action by leaders in Washington DC would have been to step back, take a deep breath and delay any further implementation of the law until these sizable defects could be ironed out.
The Administration Has Been Rewriting the Law Since Day One
But there’s another reason that blame for the bait and switch cannot be laid solely at the feet of the Chief Justice. As might be expected in a law of such gargantuan girth, there were many drafting errors that in a perfect world could have been resolved by subsequent amendments to the law to ensure that the fixes were in accordance with the desires of a majority of Congress. Indeed, three provisions of the law already have been repealed through the normal statutory process: a) the 1099 reporting requirement that would have imposed massive burdens on small businesses; b) “free choice” vouchers that would have allowed some 300,000 employees to “opt out” of their employer-sponsored plans and choose their own coverage using employer-financed vouchers; and c) the CLASS Act intended to finance long-term care services.
But these are very much exceptions to the rule. For the most part, the administration has persistently side-stepped Congress in favor of legislation by regulation. Here (in chronological order) are the most significant:
Children with Pre-existing Conditions. For example, the law was intended to prevent insurers from excluding children with pre-existing conditions effective in 2010, but due to a drafting error, the law made this provision applicable in January 2014 (when it is applied to all adultsa as well). Consequently, within days of the law’s signing, Secretary Sebelius began jawboning insurers to comply with her interpretation of Congress’s intent rather than the law itself. The Department of Health and Human Services subsequently issued a rule on June 28, 2010 that beginning Sept. 23, 2010, group health plans cannot exclude enrollees (employees, spouses or dependents) under age 19 based on pre-existing conditions. Of course, such lawless action was not without consequences. Even though the insurance industry was too meek to challenge the Secretary in court, a survey conducted in 2011 found that “passage of the new health care law prompted health insurance carriers to stop selling new child-only health plans in many states. Of the 50 states, 17 reported that there are currently no carriers selling child-only health plans to new enrollees. Thirty-nine states indicated at least one insurance carrier exited the child-only market following enactment of the new health care laws.”
Sebelius Waivers. The law was so broadly written that it gave the Secretary of Health and Human Services substantial discretionary authority. According to Phillip Klein at American Spectator:
There are more than 2,500 references to the secretary of HHS in the health care law (in most cases she’s simply mentioned as “the Secretary”). A further breakdown finds that there are more than 700 instances in which the Secretary is instructed that she “shall” do something, and more than 200 cases in which she “may” take some form of regulatory action if she chooses. On 139 occasions, the law mentions decisions that the “Secretary determines.”
There are 6 different types of waivers that have been issued, some of which were explicitly provided for in the law (MLR waivers for states, state innovation waivers and individual mandate waivers) but others were invented on the fly in response to political pressures (contraception waivers, MLR waivers for mini-med plans, annual limit waivers for mini-med plans). These various waivers have been usedAs well, the U.S. Justice Department is now determining whether it is possible to grant anti-trust waivers for Accountable Care Organizations. In short, the administration took Congress’s extraordinary grant of power to a single unelected individual and stretched it even further. Secretary Sebelius ultimately used the authority given to her (and then some) to grant thousands of waivers affecting roughly 4 million individuals. Critics have noted that over half (58%) of plan members benefiting from these waivers were labor union members, a pattern of favoritism towards political allies that was amplified in the Early Retiree Reinsurance Program (where public employee union plans accounted for 47% of plans given assistance, while private unions accounted for another 10%).
Exchange Subsidies in States with Federally-run Exchanges. On August 17, 2011, the IRS issued a proposed regulation to implement Section 1401 which states that a person may receive a premium subsidy if he or she is “enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act.” [Section 1311 of the law instructs state governments to set up an exchange. If a state fails to create its own exchange, then Section 1321 directs the federal government to establish an exchange in that state. There is no provision in the law for federal subsidies to help pay the insurance premium in Section 1321 exchanges]. Rather than fix this shortcoming in the language of the law, the final IRS rule issued on May 23, 2012 ignores the law and offers premium subsidies to people under both Section 1311 (state exchange) and Section 1321 (federal exchange).
Consequently, the state of Oklahoma is challenging this rule in court. If the court upholds Oklahoma’s position, it means that the employer mandate and individual mandate provisions will be unenforceable in states since the ACA specifies that the fines or penalties associated with these mandates apply only to individuals or companies that are eligible to receive the tax credits and subsidies. In short, the law would completely collapse in the 27 states planning to rely on a federal exchange (and likely the 7 states in partnership exchanges as well).
Out-of-Pocket Spending Caps. According to the law, the limits on out-of-pocket costs for 2014 were $6,350 for individual policies and $12,700 for family ones. According to New York Times reporter Robert Pear, this was “a significant consumer protection.” Yet in February 2013, the Department of Labor published a little-noticed rule delaying the cap until 2015. As Mr. Pear described it in mid-August: “The grace period has been outlined on the Labor Department’s Web site since February, but was obscured in a maze of legal and bureaucratic language that went largely unnoticed. When asked in recent days about the language — which appeared as an answer to one of 137 “frequently asked questions about Affordable Care Act implementation” — department officials confirmed the policy.” So much for transparency.
Small Business Health Options Program (SHOP). This was intended to give small employers several different health plans from which to choose. On March 11, 2013, a rule was issued to delay SHOP for one year until 2015. Specifically, SHOP will still be open in 2014, but for the 33 states in which the Federal Government runs the exchange, SHOP will offer only one insurance choice. Consequently, States running their own exchanges have been given the option to delay having their SHOP open in 2014. Thus, SHOPs will be not be fully operational as intended until January 1, 2015. Even liberal blogger Joe Klein characterized the failure to set up such plans despite having three years to do so as “Obamacare incompetence.”
Managed Care Option. The Federal Basic Health Plan Option (FBHPO) was a managed care option designed to make coverage more affordable. It originally was to have begun in 2014, but in April 2013, the administration announced that the provision has been delayed one year until 2015.
Large Employer Mandate. On July 2, 2013 the administration announced that reporting requirements for employers with 50 or more workers would be delayed for one year until January 1, 2015. The shared-responsibility payments (i.e., employer penalties) required by such employers likewise were postponed for one year. Some have questioned whether the administration has the legal authority to unilaterally suspend this provision, but it remains to be seen whether anyone can or will take legal action.
Employer Coverage Verification in State-Run Exchanges. Because reporting requirements for large employers were delayed 1 year, the state-run exchanges in 16 states and the District of Columbia are being given until 2015 to verify whether exchange applicants are eligible to receive subsidized coverage (i.e., have not received an affordable offer of health insurance from their employer). According to a final rule issued July 5, 2013–on grounds that “the proposed rule is not feasible for implementation for the first year of operations”– ”the exchange may accept the applicant’s attestation regarding enrollment in an eligible employer-sponsored plan…without further verification.” Consequently, at least some who receive subsidized coverage next year will not be eligible for it.
Income Verification in State Exchanges. The Centers for Medicare and Medicaid Services originally issued a proposed rule requiring exchanges to request further income verification data from anyone who reported an income that was 10 percent lower than what federal data indicated they earned in the previous year. However, the July 5, 2013 final rule modified this to require an audit of only of a statistically significant sample of such cases. For everyone else, “for income verification, for the first year of operations, we are providing Exchanges with temporarily expanded discretion to accept an attestation of projected annual household income without further verification.” Critics have noted that in principle, “since IRS knows your income, it could claw back these excess subsidies afterwards, if it chooses to. But the IRS’ record of impartiality is, shall we say, contested. And people who don’t file tax returns—such as those with incomes below the poverty line—would probably not be subject to that enforcement mechanism.” Moreover, Congress has set limits on the amount that the IRS can “claw back” (ranging from $600 to $3,500 for families and half those amounts for individuals). Note that families below poverty who commit fraud to get subsidized coverage through their state health exchange will be eligible for more than $18,000 in subsidies. In such circumstances, the IRS would be able to claw back less than one-fifth of any fraudulently obtained subsidy.
Electronic Notices for Medicaid and Exchange Subsidies. Due to concerns that technology will not yet be in place, the CMS also on July 5 delayed for one year the requirement that states provide applicants with electronic notification of eligibility for Medicaid and exchange subsidies.
Congressional Exemption from Exchange Subsidies. Yet another glitch in the law was “resolved” by regulation just last week. Thanks to an amendment introduced by Senator Harry Reid, the law requires members of Congress and aides who work in their personal offices to get coverage through the exchanges. Such individuals obviously could no longer receive coverage through the Federal Employees Health Benefits Program (FEHBP). But the law contained no provision authorizing the government to pay premiums for federal employees who obtain insurance through the exchanges. But neither does it allow the government to reimburse federal employees who buy health insurance on their own. According to the New York Times, David M. Ermer, a lawyer who has represented insurers in the federal employee program for 30 years, concluded that “I do not think members of Congress and their staff can get funds for coverage in the exchanges under existing law.” This particular glitch was pointed out by the Congressional Research Service just 10 days after Obamacare was enacted, which is to say the administration has had ample time to get Congress to fix this provision.
Nevertheless, rather than address the dilemma openly and honestly, the administration once again elected to end-run a legitimate statutory process in favor of issuing a regulation of questionable legality. Last week’s rule permits the Office of Personnel Management to provide federal employees on the exchange with a subsidy similar to the one they would have gotten if they purchased FEHBP coverage (roughly $5,000 for individuals, $11,000 for families). Such employees consequently would be ineligible for premium tax credits (i.e., regular exchange subsidies), but the reality is that most federal employees earn too much to qualify for such subsidies in the first place. The consequence of the rule will be millions of federal employees who will receive very generous tax-financed subsidies on the exchanges while their same-income non-federal employed counterparts on the exchange who are above 400% of poverty are expected to pay full-freight for their health care coverage.
The Bottom Line: Could the Law Now Being Implemented Ever Have Passed Congress?
In light of the foregoing rather dramatic changes to law as it was originally designed in Congress, it is reasonable to ask whether the law as it is actually being implemented could ever conceivably gained majority support in 2010. While it was unclear whether the originally conceived Rube Goldberg contraption that emerged from Congress could ever work well, what we know for certain is that the version now being put into place is in even greater danger of becoming the “train wreck” feared by Senator Baucus (D, Montana). Things are now so rushed that the administration will be unable to certify that the exchanges have met privacy standards until September 30–the day before they open for business! As a consequence, there is a very real risk that “Obamacare’s exchanges may end up illegally exposing Americans’ private records to hackers and criminals.” An administration that cared about truly reforming health care would have the common sense to delay the whole law for a year to give the courts time to resolve the remaining legal questions and lawmakers time to systematically ponder how to fix this terribly misguided law. America is the country that won World War II, put the first man on the moon and served as a shining beacon of freedom for billions across the globe. Most Americans grew up thinking they lived in the greatest nation on earth. Is this really the best the greatest nation on earth can do?
Update #1: August 15, 2013
In The Obamacare Train Wreck at National Review Online, Andrew Stiles has compiled a similar list of Obamacare implementation failures.
Update #2: August 15, 2013
In last week’s NRO, Kevin Williams had an excellent piece on the administrative state: “President Obama’s approach to government…amounts to that fundamental transformation of American society that President Obama promised as a candidate: but instead of the new birth of hope and change, it is the transformation of a constitutional republic operating under laws passed by democratically accountable legislators into a servile nation under the management of an unaccountable administrative state.”
 In the aggregate, current debts and unfunded liabilities across all levels of government currently amount to $280 trillion. This figure includes the federal debt of $16.9 trillion, state and local government debts of $3.0 trllion, federal unfunded liabilities of $222 trillion and state and local unfunded liabilities of $38 trillion. These are net present value figures measured in 2012 dollars, meaning that they are inflation-adjusted and discounted to reflect the time value of money. Obamacare alone added $17 trillion to unfunded liabilities (due to both the Medicaid expansion as well as exchange subsidies). Federal unfunded liabilities grow about $11 trillion annually, so at the time Obamacare was passed, it is safe to assume that the aggregate figure was conservatively at least $230 trillion.
 As two scholars put it in the well-regarded (but hardly right-leaning) Journal of Health Politics, Policy and Law: “Attempting to play the role of King Solomon in his PPACA decision, Chief Justice John Roberts split the baby perversely by ruling it was not a tax under the Anti-Injunction Act, which would have likely deprived the Court of jurisdiction to hear this pre-enforcement challenge to the individual mandate, but it was a tax for taxing and spending purposes even though Congress said it was a “penalty” and not a tax. And the Chief Justice had to twist further his “wisdom” to hold that it was not an unconstitutional direct tax, even though that is exactly what it is, if it is a tax in the first instance.”
 In FY2010, Medicaid funding amounted to 22.2% of the average state’s budget (Table 29). Since federal spending accounted for $237 billion of the $359 billion spent that year (Table 28), this implies Uncle Sam’s Medicaid contribution averaged 14.7% across all states. But Congress’s leverage was nearly 50% larger in states such as Florida, where Medicaid that year absorbed 28.9% of the state’s budget and Uncle Sam paid more than 68% of Medicaid bills (making the federal portion of Medicaid in that state amount to 19.7% of the state’s entire budget).
 AEI’s Tom Miller, a former trial attorney, has pointed out that the partnership exchanges are yet another example of something that emerged from regulations rather than a provision in the law itself. Because a partnership cannot be properly deemed “an Exchange established by the State under 1311” it is unlikely a court that disallowed subsidies on federally-run exchanges would permit them on partnership exchanges either. Tom has written a thorough post explaining the most recent decisions in the Oklahoma case.
 Some have argued that the delay of both employer and insurer reporting requirements means that de facto, the individual mandate has been delayed a year, since there is no practical way to enforce it. It remains to be seen whether that shoe ever drops.
 This provision only applies to personal staff; committee and leadership staff members will continue to be eligible for FEHBP coverage and won’t be forced onto exchanges.
There are no comments available.
1150 17th Street, N.W. Washington, D.C. 20036
© 2014 American Enterprise Institute for Public Policy Research