The Corner

The Next Step: Four Ways to Fight Obamacare

The always excellent Michael Cannon of Cato has a post over at Forbes with advice for the free-market movement about what to do next in the fight against Obamacare. He suggests that, rather than fight among themselves about whether or not the Cruz-Lee strategy was good or bad, they should focus on the following four things:

  1. Stop the Medicaid expansion in the states.
  2. Get states, employers, and citizens to challenge the IRS’s illegal Obamacare taxes.
  3. Educate states about how to block the IRS’s illegal taxes legislatively.
  4. Urge House investigators to subpoena all materials related to the IRS’s illegal taxes.

His whole piece is a must-read (also follow all of his links for more information on each point).

The last three points are very important. As Cannon has been arguing for a while, Obamacare authorizes individual health-insurance subsidies only through state-established exchanges. That means, as the law’s written, the 34 exchanges created by the federal government are not supposed to distribute any subsidies. The states that have rejected the Medicaid expansion and declined to set up an exchange by law have therefore actually defunded a good chunk on the law. Better yet, as he explains, since “those subsidies trigger penalties under both the employer mandate and individual mandate, those states have by law also exempted all of their employers and about 8 million individual residents from those penalties.” But the IRS is trying to impose the taxes and pay the subsidies anyway, without any congressional authorization.

State attorneys general, employers, and individual taxpayers have so far filed four lawsuits challenging the IRS actions. The Wall Street Journal today has a piece on the challenges to this aspect of the law, which will be heard by federal judges in D.C. and Virginia:

On Monday, a federal judge in Washington will consider whether the Internal Revenue Service exceeded its authority when it issued a rule last year making clear that subsidies should extend to coverage acquired through federal exchanges.

The dispute may seem technical, but the stakes are huge. The subsidy is available to households with incomes ranging from the federal poverty level up to four times that amount, or $78,120 for a family of three. . . .

If successful, the lawsuits could hobble the Affordable Care Act’s mandate that large employers sponsor health insurance for employees. That is because penalties against employers kick in only after one of their workers enrolls in a subsidized plan through an exchange, so if employees can’t get a subsidy their employer presumably won’t face a fine. The Obama administration has delayed such penalties until 2015.

“If we’re right on the law, then there are no subsidies or employer penalties” in states not running their own exchanges, said Michael A. Carvin, a partner at the law firm Jones Day who is handling the lawsuits in Washington and Virginia.

What does it mean? Well, it depends:

When laws are written ambiguously, courts typically defer to executive agencies to sort out the meaning. But judges owe no such deference if they find the meaning of the law is clear.

Jonathan Adler, a law professor at Case Western Reserve University who has been critical of the law, was among the first to raise the idea of a potential legal challenge to the IRS regulation, in a July 2012 paper published in an academic journal.

Mr. Adler said he and his co-author, Michael F. Cannon, pored over the legislative history, expecting to find evidence that lawmakers made a drafting mistake. “But there is no evidence,” Mr. Adler said.

This is an issue worth following closely. The WSJ piece is here.

Finally, as to Cannon’s first piece of advice (stop the Medicaid expansion), now is the time to point out to taxpayers in the states allowing the Medicaid expansion will end up costing much more than lawmakers are telling them right now. For now, under the Medicaid expansion, the federal government will cover 100 percent of one category of spending, for one category of enrollees (newly eligible adults), for the first three years. States would be responsible for covering the administrative costs – plus the cost of covering newly eligible children and any already-eligible new enrollees who are prompted by the new health-care law to join – at the state’s current matching rate. Starting in 2017, the states would have to pick up a larger share of the cost of claims for newly eligible adults. That share would rise to 10 percent by 2019. At $9 in subsidies for every $1 spent by the states, it may sound like a good deal, but it’s a risker bet than it looks.

First, the academic literature has long suggested that increased federal funding doesn’t reduce a state’s government spending (that’s what economists call “the flypaper effect”). Then when the federal funding goes away or is reduced, the state ends up increasing its spending to maintain the level of services that its constituents have gotten used to, which in turns means higher taxes. More specifically, the research published at the Mercatus Center by West Virginia University’s Russell Sobel and Charles Crowley shows that for every $1 a state receives from the federal government, it tends to raise its own future taxes between $0.33 and $0.42 when federal money goes away. Considering the financial situation faced by federal government, it’s reasonable to assume that the subsidy won’t continue at this level over time, which means even higher taxes for taxpayers in states that accept the Medicaid expansion.

The bottom line: The free-market movement should move beyond yesterday’s tactical disputes, and join forces and work together on Cannon’s list


The Latest