Obamacare’s Fatal Flaws

Congress made a serious drafting error in the health-overhaul law when it said that subsidies could be delivered through state exchanges but not through any federal fallback exchanges. (Michael Cannon of the Cato Institute wrote about this in the Wall Street Journal recently.) The Obama administration has been trying an end-run around the problem by ordering the IRS to simply say in its proposed regulations that the subsidies can be delivered through either type of exchange. This is a big issue because a growing number of states are refusing to create exchanges. If they don’t, the feds can come in and set one up, but these will be relatively useless if they can’t deliver subsidies.

Sen. Orrin Hatch, the ranking Republican on the Senate Finance Committee, this week blew the whistle on the proposed IRS rule. In a letter to Treasury Secretary Tim Geithner and IRS Commissioner Doug Shulman, Hatch says the law is clear that only state exchanges can offer the subsidies, emphasizing that the administration doesn’t have the authority to go beyond the language of the law.

“Contrary to the clear wording of the statute, your proposed regulations suggest otherwise, extending the availability of premium credits to those participating in federal exchanges,” Hatch wrote. “I am concerned that if finalized, these rules would exceed your regulatory authority, violating the Constitution’s separation of powers.”

One more reason to throw the law overboard.


Two University of Minnesota law professors write that Obamacare actually provides incentives for “targeted employer dumping” of sicker workers into taxpayer-subsidized health exchanges. The article — “Will employers undermine health care reform by dumping sick employees?” by Amy Monahan and Daniel Schwarcz — explains how companies could redesign their health benefit programs to make it more costly for sicker employees to stay with the company health plan and encourage them to opt instead for the exchanges.

Monahan and Schwarcz write that this “would expose these exchanges to adverse selection caused by the entrance of a disproportionately high-risk segment of the population into the insured pool.” They conclude, “Not only would this undermine the spirit of health care reform, but it would jeopardize the sustainability of the insurance exchanges.” (NPR had a good story about the threat yesterday.)

In spite of this, senior HHS officials have said it would be a good thing for employers to “dump [their] people into the exchange.” Speaker Pelosi talked favorably about Obamacare as a way “for businesses to be emancipated from health care costs because they have a way out or whatever works for them.”

The only problem is that it would not be good for sicker employees, who would have greater difficulty finding physicians to see them under what surely will be lower payment rates in the exchanges, and it would be bad for taxpayers, who will have a much bigger bill to pay for exchange subsidies.

A second reason to jettison the law.


A Michigan-based medical device company, Stryker, announced that it would be shedding “five percent of its workforce over concerns about the impending 2.3 percent medical device tax prescribed by” Obamacare.

A press release from the Kalamazoo company noted that “the targeted reductions [i.e., layoffs] … are being initiated … in advance of the new medical device excise tax scheduled to begin in 2013” under Obamacare.

With jobs creation the top priority of the American people, this is definitely not good news.

And the list of reasons to dump Obamacare goes on and on.

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