Freedom Line Blog

With ObamaCare architect Jonathan Gruber’s admissions that the controversial health law was sold on a pack of lies, the probability is rising that the Supreme Court will interpret the law as written and eliminate subsidies for millions of people.

If that happens, will Republicans in Congress be ready?

In order to lay the groundwork for an ObamaCare alternative that covers as many or more people than the current law, and costs less, Republicans in Congress could unite behind a framework proposed by conservative health experts James Capretta and Yuval Levin. Similar ideas have been endorsed by Senator Orrin Hatch (R-UT), the incoming-chairman of the Senate Finance Committee, and Rep. Paul Ryan (R-WI), the likely next chairman of the House Ways and Means Committee.

If the Supreme Court does strike down the subsidies, President Barack Obama won’t have much leverage since, “Much of ObamaCare would have just self-destructed due to its own design flaws and lack of public support, and Republicans would be offering a way to advance the law’s stated goal of assuring coverage – if not in the highly prescriptive and centralized manner the White House prefers”, writes Ramesh Ponnuru. “Democrats’ favored lines of attack on Republicans over health care – that they have no alternative, that they would take people off the insurance rolls – would have been neutralized.”

Sounds like a strategy worth pursuing.

Too bad the incoming Republican majority in Congress probably can’t repeal ObamaCare’s individual mandate before next April, because it looks like millions of middle-income Americans will see their tax refund cut by one-third.

“The financial penalty for skipping out on health insurance coverage [i.e. not complying with the individual mandate] will more than triple to $325 per person in 2015, or 2 percent of income, depending on whichever is higher,” reports CBS News. “Children will be fined at half the adult rate, or $162.50 for those under 18 years old.”

“Based on the flat-rate method, the maximum dollar amount an uninsured family could be fined is $975,” says the news outlet.

To put this into perspective, the average annual American tax refund is about $3,000, meaning that a $975 IRS penalty would reduce the value by one-third.

This is likely to hit middle-income Americans particularly hard since many may be earning too much in wages or salary to qualify for an ObamaCare subsidy. The Catch-22 facing these families is cutting back on other spending to pay high monthly premiums, or foregoing insurance and waiting to see how much the IRS will confiscate. Either way, the predicament facing millions of middle-income Americans is likely to make them even more hostile toward a law billed as the “Affordable Care Act.”

In a surprise move, the United States Supreme Court announced today it will hear a third challenge to ObamaCare in as many years.

The case, King v. Burwell, is one of many lawsuits challenging a controversial IRS decision to extend federal subsidies to any person eligible to buy insurance on an ObamaCare exchange. The legal fight is over whether the text of ObamaCare permits subsidies to be given to citizens purchasing health insurance through Healthcare.gov, the federal exchange, when the law clearly says they cannot.

Supporters of ObamaCare say the disputed statutory language amounts to typos inconsistent with the spirit and purpose of the law. Opponents insist that the plain meaning of the words be honored, or risk the rule of law taking a back seat to bureaucratic whim.

The timing of the Supreme Court’s decision means that oral arguments will be held sometime in the spring with a final decision likely next summer. If the challengers are successful, King v. Burwell may go down in history as the lawsuit that signaled the beginning of the end of ObamaCare.

“Amy Lotven of the trade publication Inside Health Reform reports that before insurers agreed to sell coverage through the Patient Protection and Affordable Care Act’s health insurance Exchanges in 2015, they demanded that the federal Centers for Medicare and Medicaid Services explicitly agree to let them cancel policies if any of the Halbig cases succeed in blocking the subsidies that carriers had been receiving in the 36 states whose ObamaCare Exchanges were not, as [ObamaCare] requires before subsidies can flow, ‘established by the State’”, writes Michael Cannon.

You’ll recall that there is a big fight over whether the Obama administration is blatantly violating its own law by making subsidies available to people who don’t qualify under the statute. And, as Cannon points out, making illegal subsidies available also subjects up to 57 million individuals and employers to illegal penalties under ObamaCare’s individual and employer mandates.

That insurance companies demanded the right to cancel policies relying on subsidies shows how concerned the industry is at being blamed for high-cost coverage when and if the government’s policy is ruled illegal. That the Obama administration agreed indicates the strength of the argument that even the executive branch should follow the law.

“Without [ObamaCare’s] premium support, premiums rise by nearly 45 percent, and enrollment falls by nearly 70 percent,” says a report by RAND Health.

The analysis is part of an evaluation commissioned by the federal Department of Health and Human Services (HHS), the agency in charge of ObamaCare implementation.

The report’s publication follows on news that a federal district judge in Oklahoma ruled ObamaCare’s premium support (i.e. subsidies) mechanism is not available in states that use Healthcare.gov, the federal ObamaCare exchange. According to the text of the law, eligibility for subsidies depends on a citizen’s state operating its own exchange. If the law’s plain meaning is followed, RAND’s analysis will apply to citizens in more than half of the states.

The RAND Health report confirms a simple truth about ObamaCare – if people must pay the full freight of its “affordable” insurance, they will refuse.

H/T: The Daily Caller

The Obama administration has been catching some flak over its intent to redirect taxpayer dollars toward a controversial “risk corridor” program designed to bailout ObamaCare-friendly health insurance companies that lose too much money.

The primary line of attack stems from the absence of any specific congressional appropriations to fund the program. Congressional Republicans and the Government Accountability Office say this precludes any end-run maneuvers to pay for it anyway, while the Obama administration is ignoring opposition.

But in the drive to add this abuse of executive discretion to President Barack Obama’s long list of power grabs, a bit of history is sure to make Republican critics think twice before pushing much farther.

“But Loren Adler, research director for the Committee for a Responsible Federal Budget, points out that a similar risk-protection program in the Medicare prescription drug program does not receive an explicit annual appropriation, yet has not been challenged,” reports an entry on the Modern Health Care blog. “He thinks that makes it highly unlikely that HHS will be deterred from making the payments to insurers under the risk corridors program.”

Indeed, any federal judge reviewing a future legal challenge to HHS’ pending move would very likely analogize the two programs and conclude that if Congress has not objected to the practice in one instance, and the two cases are similar, it probably intended to defer on both. In such a scenario, the end result is a judge (rightly) telling Congress to speak more clearly and fix the law.

The upshot of all this is that it makes everyone painfully aware of how important it is for Congress to pass clear laws. Republicans aren’t responsible for ObamaCare’s poor draftsmanship, but if they ever get enough power to make changes, they should take care to make them unambiguous to interpret.

Could ObamaCare’s “risk corridor” program become the health insurance industry’s equivalent of Fannie Mae and Freddie Mac – the federally funded entities that spent $180 billion bailing out banks who issued subprime mortgages?

Stephen Moore, the chief economist at the Heritage Foundation, thinks so.

“But insurance experts warn that [the risk corridor] program creates the same moral hazard problem for health insurance that we saw in the mortgage market with Fannie Mae and Freddie Mac,” Moore writes at Investor’s Business Daily. “The guarantee on bad mortgages encouraged bad mortgages. The guarantee against losses on ObamaCare enrollees encourages insurers to toss sound underwriting standards out the window. This didn’t turn out so well with Fannie and Freddie, which received a taxpayer-funded bailout of more than $180 billion after issuing subprime mortgages that should never have been written.”

Moore goes on to say that surveys of health insurance companies selling plans on ObamaCare exchanges say that the vast majority expect to receive a payment from the federal government to cover their losses. Estimates for the first year near $1 billion. And, since there is no cap to how much the feds will reimburse, there is no limit to how much money a company can lose and still expect a check from Uncle Sam.

Despite all this, the Obama administration is chugging ahead with plans to make payments under the risk corridor program without explicit congressional appropriations. Republicans are contesting President Barack Obama’s authority to do this – with an assist from a recent GAO legal opinion – but they should really train their fire on eliminating the risk corridor program as is. As with IRS tax credits, ObamaCare can’t survive without a convoluted shell game that hides the true cost of health care.

We’ll never get health care policy right until we can talk honestly about how it’s funded. Now would be a good time for the GOP to being that process.

Add Indiana to the list of states arguing that ObamaCare’s subsidies can’t be used on Healthcare.gov, the federal exchange.

The challenge is the same mounted by other states contesting the IRS’s unilateral decision to go against the clear language of ObamaCare which makes subsidies available only on state-based exchanges, a restriction intended to induce states to shoulder the implementation costs for fear of angering residents by exposing them to ObamaCare’s real costs.

U.S. District Judge William T. Lawrence will decide whether Indiana’s case has merit in October. Precedent from other circuits isn’t all that helpful, since the D.C. Circuit upheld the statutory scheme while the Fourth Circuit sided with the IRS.

The silver lining: Whatever Lawrence and the appellate circuit decide will further fragment ObamaCare’s implementation, increasing the likelihood that the Supreme Court will weigh in.

Whenever that happens, hopefully there will still be five votes to uphold the plain meaning of the law.

H/T: Indianapolis Star

The Government Accountability Office set up a sting operation to test whether ObamaCare’s eligibility verification system is open to abuse.

GAO discovered a resounding Yes.

“Fake applicants were able to get subsidized insurance coverage in 11 of 18 attempts,” reports National Journal.

Investigators had the most success when using ObamaCare’s online and telephone enrollment systems. These improper enrollments resulted in subsidies totaling $30,000 annually.

The findings of the sting operation bode ill for the controversial health reform law. The failure to correctly match applicants to subsidies indicates that ObamaCare’s expensive digital architecture is failing in one of its most basic tasks.

And the failure could be costly.

Assuming most ObamaCare applicants are not attempting to defraud taxpayers – but rather are just trying to comply with the law’s individual mandate – incorrectly receiving financial help this year could result in a heavier tax bill next year. That’s because the IRS is tasked with settling accounts on ObamaCare subsidies, with taxpayers required to pay back any subsidies they weren’t eligible for when calculating their income tax liability.

So far, the IRS hasn’t rewritten ObamaCare to cushion the blow from bad drafting – like it did when it made subsidies available to citizens in states without a state-based exchange.

Apparently, that kind of face-saving deference is only extended to government-growing ideologues; not every day Americans just trying to play by the rules.

John Fund documents the Supreme Court’s growing impatience with the Obama administration’s refusal to adhere to the letter of the law in a piece out today with National Review.

Citing Jonathan Adler, a conservative legal expert, Fund highlights several recent Supreme Court decisions that slap down the executive branch’s significant regulatory overreach. Justices on both sides of the ideological spectrum – from the liberal Kagan to the conservative Scalia – refuse to grant President Barack Obama and his bureaucratic lieutenants the authority to change statutory requirements on a whim to suit policy goals the underlying law does not allow.

This backdrop is important as the D.C. Circuit Court of Appeals prepares to hand down its decision in Halbig v. Burwell, a case that challenges an IRS interpretation of ObamaCare that, if overturned, could prohibit the subsidies most Americans need to pay for the law’s expensive insurance plans.

Weighing in the challengers’ favor are the 13 unanimous Supreme Court decisions that have invalidated moves by Obama executive agencies since he took office. In its reasoning the Court has consistently said that the president must adhere to the constitutional framework for making laws, which limits the executive to faithfully executing (i.e. carrying out) what Congress has actually passed as legislation.

In the ObamaCare context, that means striking down the IRS rule that explicitly ignores the prohibition on giving federal subsidies to users of the federal health insurance portal.

Making them available only on state exchanges was an enticement to get states to foot the bill for implementation. It has since backfired with 34 states declining the deal.

Does that complicate the Obama administration’s ability to call federal ObamaCare plans affordable? You betcha. But it also preserves the constitutional check on a president prone to act beyond his designated powers.

Though it might be unpleasant for the White House and its allies, the world will not end if Barack Obama is forced to negotiate with Congress. Another judicial reminder to respect the structure of the Constitution would be a public service by the D.C. Circuit – and the Supreme Court.

Amid all the legitimate privacy concerns with ObamaCare’s regulatory apparatus – in particular the proposed data hub that allows agencies like the IRS, Social Security Administration and HHS to share reams of information about individual citizens with each other, states and insurance companies – it’s been taken for granted that the liberals in charge of this grand social experiment at least had the technical competency to build the necessary infrastructure.

But the facts say otherwise.

“Of the roughly 8 million Americans now signed up for coverage this year under the health care law, about 5.5 million are in the federal insurance exchange,” reports the Washington Post. “And according to internal documents, more than half of them – about 3 million – have an application containing at least one kind of inconsistency.”

The Post says the most frequent inconsistency is a discrepancy in the income reported on an ObamaCare application and the income reported to the IRS. This type of inconsistency is present on between 1.1 million and 1.5 million applications. To their credit, citizens have sent in “about 650,000 pieces of ‘proof’” to justify their asserted income.

Because of the level of detail required when filling out the 20-plus page ObamaCare application, it’s no surprise many people mistakenly enter something wrong; especially when considering that most people get help on their taxes from either a certified professional or software that easily finds all the right deductions. Neither option was readily available to the vast majority of ObamaCare applicants.

What is astonishing, however, is the federal government’s complete inability to process and verify corrections digitally. “Because the computer capability does not yet exist, the work will start by hand, according to two people familiar with the plans,” says the Post. (Emphasis added)

ObamaCare subsidies are the essential ingredient for claiming that ObamaCare insurance is “affordable” since they at least partially offset the increased cost of coverage. Failing to launch a website capable of verifying income claims that determine whether a person qualifies for subsidies is inexcusable.

If there is any silver lining to this latest blunder it’s that Serco – the federal contractor accused last week of billing HHS $1 billion while hiring employees literally to do nothing – is now on the hook for correcting the inconsistencies. Small comfort though, since apparently Serco gets paid based on the number of employees it hires rather than the efficiency of its work product. Requiring the company to sort paper applications by hand seems almost too awful to be true.

Oregon spent $248 million developing its own ObamaCare insurance exchange and never enrolled a single person online.

That kind of return on investment convinced state officials “to abandon the exchange entirely and switch to the federal website, the first state to do so,” writes Lou Cannon. “The Oregon board made its decision after being told it would cost $78 million to fix Cover Oregon compared to $4 million to $6 million to make the technical changes needed to join the federal exchange.”

Investigations are ongoing into why the state’s heavily bankrolled website was such a bust. Once thought to be a model for progressive high-tech governing, Cover Oregon is now a source of embarrassment for the state’s Democratic establishment.

Whatever the causes for the technology failure, Oregon’s switch to the federal alternative could hit enrollees hard. An estimated 70,000 Oregonians enrolled with paper applications through Cover Oregon, making many of them eligible for federal subsidies. However, the text of ObamaCare doesn’t make subsidies available if insurance is bought via the federal website. So far, the IRS isn’t making the distinction, but a three-judge panel at the D.C. Circuit seems ready to apply the law as written.

The intent of ObamaCare’s drafters was to reward state citizens with federal subsidies if they chose to shoulder the start-up costs associated with running a state-based exchange. Now that Oregon is pulling the plug on its failed website, its citizens may be losing the assistance they need to make ObamaCare affordable.

Up to 38% of people who qualify for Obamacare exchange subsidies may have to pay some or all of the money back to the IRS. That’s because the amount of subsidy dispensed is based on a sliding scale. As income rises, the amount of subsidy decreases. In practice, many people who currently qualify for a subsidy could wind up paying back the amount if they earn just a little bit more in income.

“At biggest risk are people who annual household income put them near the thresholds where the Obamacare subsidies make steep declines,” explains AEI expert Scott Gottlieb. “These cliffs are steepest for those people who earn 150% of the federal poverty level (family of four earning $35,000 in annual household income); 250% (a family of four earning about $55,000 annually); and 400% (a family of four earning about $95,000 annually).”

The upshot of this is that people may become much more sensitive to family budgeting since their financial stability depends on which side of the subsidy wall they fall. The downside of course is that we’re likely to start seeing people decline job promotions and salary hikes to avoid becoming a net loser at tax time.

As I’ve noted before, Obamacare’s War on Work is just beginning.

A new report by the non-partisan Congressional Budget Office predicts the Affordable Care Act (i.e. Obamacare) will cause up to 2 million lower-income workers to leave the labor force over the next decade because they will make more in government benefits than as a private employee.

“CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor – given the new taxes and other incentives they will face and the financial benefits some will receive,” the agency says in Appendix C, Labor Market Effects of the Affordable Care Act: Updated Estimates (pdf).

The incentive to drop out of the workforce is one’s eligibility for a government subsidy to help pay for an insurance plan bought through an Obamacare exchange. Since eligibility for a subsidy phases out as a person’s income rises, people who will receive subsidies will have to factor in whether to take a job that makes more money, but will likely reduce or eliminate eligibility. In this scenario, taking the job may actually result in a net loss of income as the person must now pay for the full cost of health insurance.

The disincentive to work also applies to those hanging between Medicaid and Obamacare subsidies. Eligibility for Medicaid means the cost to the beneficiary is nothing (at least not directly). In this scenario, qualifying for a subsidy increases one’s out-of-pocket expenses, making it financially smart (for the individual) to work less and stay on Medicaid.

It’s important to emphasize that deciding to work less to receive more in government benefits is a financially rational decision for individuals to make, and one that any economist would readily predict. My hunch is that at least some of Obamacare’s architects knew this and designed their programs accordingly.

The problem, of course, is that convincing millions of people not to work is not financially sustainable for the country as a whole.

Federal subsidies are the lynchpin holding Obamacare together. Without them, insurance plans bought on state-run exchanges would be too expensive for most people to buy.

Which means there’s a huge gaping problem if you live in one of the 36 states that chose to let the feds run the exchange: You don’t qualify for federal subsidies.

“Congress was exceedingly clear that tax credits and subsidies are available to people whose plans ‘were enrolled in through an exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act,’” argues Scott Pruitt, Oklahoma’s Attorney General, in the Wall Street Journal.

“Congress specified that credits and subsidies are only to be available in states that set up their own health-insurance exchange for a reason: It could not force states to set up exchanges. Instead, it had to entice them to do so.”

But if the enticement fails, then citizens are exposed to the full brunt of Obamacare’s increased cost structure for health insurance. That’s the risk the health law’s drafters took. Now the plain meaning of the text should result in a massively unpopular program.

The Obama administration is spooked. If the vast majority of Americans are forced to choose between paying the real price of Obamacare-related insurance or a hefty fine, there will be an electoral tsunami in 2014.

Here’s hoping Oklahoma’s lawsuit gets a favorable ruling from the Supreme Court sooner rather than later.

Another day, another leaked attempt to make an end-run around Congress.

In the wake of the widespread insurance policy cancellations forcing individuals onto Obamacare exchanges, Obama administration officials are letting it be known that they are working on an “administrative fix” that would somehow provide financial relief for those affected that don’t qualify for federal subsidies to offset the health law’s higher premiums.

This trial balloon seems to be the necessary corollary to President Barack Obama’s promise Thursday night “to work hard to make sure that [people losing their individual policies] know we hear them and we are going to do everything we can to deal with folks who find themselves in a tough position as a consequence of this.”

Even if that means rewriting the law without Congress, and exploding the cost of Obamacare.

As written, Obamacare subsidies are capped at 400 percent of the federal poverty line, which translates into an annual income of no more than $46,000 per year for an individual.

But, “In June 2009, the CBO evaluated a draft proposal from the Senate Health Education Labor and Pensions Committee that offered subsidies as high as 500 percent of the federal poverty level,” writes Philip Klein.

“In the period from 2014 through 2019 alone, CBO estimated that the exchange subsidies would cost $1.2 trillion.” Dropping the cut-off level to 400 percent of FPL reduced the cost estimate to $458 billion over the same six year period.

If the Obama administration elects to go this route, Klein says expect to see another famous presidential pledge come under fire: “I will not sign a plan that adds one dime to our deficits – either now or in the future. I will sign if it adds one dime to the deficit, now or in the future, period.”

If you think Obamacare-approved insurance is expensive now, imagine how high it could go if the Supreme Court rules federal subsidies illegal.

Currently, there are four lawsuits making their way through the federal judiciary. I’ve profiled one from Oklahoma previously, and its arguments are essentially the same as the others.

In a nutshell, the text of Obamacare makes federal subsidies available to people buying health insurance on state-run exchanges created under Section 1311 of the law. The law says nothing about subsidies being available for insurance bought through federally-run exchanges created under Section 1321.

The Internal Revenue Service tried to paper-over the problem by issuing a regulation that made subsidies available on both sets of exchanges, but that’s being vigorously challenged as an illegal affront to the plain meaning of the Obamacare statute.

As Sean Trende notes, this challenge to Obamacare, if successful, wouldn’t kill the law outright. That might make voting against the IRS’s power grab more palatable for Chief Justice John Roberts, who cast the crucial fifth vote to uphold the individual mandate last year.

Of course, if the subsidies aren’t available to people in the 34 states where HHS is operating an exchange, then the system will implode. Even with subsidies many people are struggling to pay for the higher costs. Take them away and a huge political backlash will be unleashed.

If any of these cases gets to the Supremes, let’s hope they stick to the law and leave the politics for Election Day.

How’s this for a snapshot of ObamaCare’s priorities?

Since the controversial health law passed in March 2010, the Department of Health and Human Services (HHS) has hired 1,684 new employees.

Of those, 86 are criminal investigators while only two are consumer safety officers.

The numbers come from HHS data extracted by a Freedom of Information Request by The Daily Mail, a British newspaper.

Bear in mind, HHS’s health cops are in addition to the estimated 16,500 new agents the Internal Revenue Service is seeking to fulfill its ObamaCare policing mandate.

There are, of course, better, much less intrusive ways to do health reform.

“People would voluntarily purchase the health insurance of their choice with basic subsidies. Additional special assistance could be targeted to help those with low incomes and/or high risk-based premium costs in purchasing health insurance,” according to Thomas Miller of the American Enterprise Institute.

Instead of the demanding detailed financial and health information from millions of Americans, Miller proposes treating ObamaCare health insurance subsidies like other income tax issues, so that only “a tiny fraction of taxpayers would be subject to mostly random audits to ensure that their tax subsidies for insurance are being spent appropriately.”

Miller’s solution would nix the need for all the new ObamaCare investigators. Eliminating the 86 new HHS hires would save taxpayers approximately $138.8 million annually.

But that would mean less oversight and control for the federal government, which, as we are seeing with the rise in police-related hiring at HHS and IRS, is not a priority under ObamaCare.

Up to 20 million union members and their families will be ineligible for ObamaCare subsidies to help pay for their Cadillac-style health insurance plans, says CBS News.

Instead, members of unions for part-time and seasonal workers and their dependents will likely have to choose between higher premiums to stay on their plans – whose cost will rise because of the health law’s new coverage mandates – or cheaper plans that cover less – but are subsidized – on the state-based ObamaCare exchanges.

The reason for the choice is because ObamaCare only gives subsidies to people who are not covered by their employer. If union members opt to stay with the plans jointly administered by their union and their employer, then they, in effect, are choosing higher premiums.

Of course, opting out of the union’s negotiated health benefits makes union membership itself a much less attractive prospect, causing union leaders to fear that a mass exodus by members to qualify for ObamaCare subsidies will have the effect of shrinking union enrollment.

For its part, the Obama administration is refusing to carve out any exceptions for the affected unions, prompting at least one union official to say, “In the rush to achieve its passage, many of the act’s provisions were not fully conceived, resulting in unintended consequences that are inconsistent with the promise that those who were satisfied with their employer-sponsored coverage could keep it.”

Welcome to the club.

Hat tip to Investor’s Business Daily for pouncing on what will be a very unpopular unintended consequence of passing the Senate Gang of Eight’s immigration reform bill:

Under the immigration reform bill, some employers would have an incentive of up to $3,000 per year to hire a newly legalized immigrant over a U.S. citizen.

In avoiding one controversy — the cost of providing millions of newly legalized immigrants with ObamaCare subsidies — the Senate “Gang of Eight” may have risked walking into another.

The bipartisan legislation released Wednesday dictates that those granted provisional legal immigrant status would be treated the same as those “not lawfully present” are treated under the 2010 health law.

That means they would neither be eligible for ObamaCare tax credits nor required to pay an individual tax penalty for failing to obtain qualifying health coverage. It also means some employers would face no penalty for failing to provide such workers affordable health coverage.

So, in order to avoid the charge that legalization would give illegal immigrants citizen-like access to ObamaCare subsidies, the Gang of Eight simply bars them from access. But that means that legalized immigrants are cheaper to hire than comparable native-born workers who will be competing with more people for less jobs.

There may be a fix, but it will be messy.

Good luck with that.