Will the “Byrd Bath” Turn into a Tax Credit Bloodbath?

While most of official Washington waits for word—expected early this week—from the Congressional Budget Office (CBO) about the fiscal effects of House Republicans’ “repeal-and-replace” legislation, another, equally critical debate is taking place within the corridors of the Capitol. Arcane arguments behind closed doors about the nuances of parliamentary procedure will do much to determine the bill’s fate in the Senate—and could lead to a vastly altered final product.

In recent days, House leaders have made numerous comments highlighting the procedural limitations of the budget reconciliation process in the Senate. However, those statements do not necessarily mean the legislation released last week comports with all of those Senate strictures. Indeed, my conversations with more than half a dozen current and former senior Senate staff, all of whom have years of expertise in the minutiae of Senate rules and procedure, have revealed at least four significant procedural issues—one regarding abortion, two regarding immigration, and one regarding a structural “firewall”—surrounding the bill’s tax credit regime.

It is far too premature to claim that any of these potential flaws will necessarily be fatal. The Senate parliamentarian’s guidance to senators depends on textual analysis—of the bill’s specific wording, the underlying statutes to which it refers, and the CBO scores (not yet available)—and arguments about precedent made by both parties. Senate staff could re-draft portions of the House bill to make it pass procedural muster, or make arguments to preserve the existing language that the parliamentarian accepts as consistent with Senate precedents.

Nevertheless, if the parliamentarian validates even one of the four potential procedural problems, Republicans could end up with a tax credit regime that is politically unsustainable, or whose costs escalate appreciably.

In 2009, Democratic Sen. Kent Conrad famously opined that passing health care legislation through budget reconciliation would make the bill look like “Swiss cheese.” (While Democrats did not pass Obamacare through reconciliation, they did use the reconciliation process to “fix” the bill that cleared the Senate on Christmas Eve 2009.)

In reality, it’s much easier to repeal provisions of a budgetary nature—like Obamacare’s taxes, entitlements, and even its major regulations—through reconciliation than to create a new replacement regime. The coming week may provide firsthand proof of Conrad’s 2009 axiom.

The ‘Byrd Rule’ and Abortion

The Senate’s so-called “Byrd rule” governing debate on budget reconciliation rules, named after former Senate Majority Leader and procedural guru Robert Byrd (D-WV), consists of not one rule, but six. The six points of order (codified here) seek to keep extraneous material out of the expedited reconciliation process, preserving the Senate tradition of unlimited debate, subject to the usual 60-vote margin to break a filibuster.

The Byrd rule’s most famous test states that “a provision shall be considered extraneous if it produces changes in outlays or revenues which are merely incidental to the non-budgetary components of the legislation.” If the section in question primarily makes a policy change, and has a minimal budgetary impact, it remains in the bill only if 60 senators (the usual margin necessary to break a filibuster) agree to waive the Byrd point of order.

One example of this test may apply to the House bill’s tax credits: “Hyde amendment” language preventing the credits from funding plans that cover abortion. Such language protecting taxpayer funding of abortion coverage occurs several places throughout the bill, including at the top of page 25 of the Ways and Means title.

The question will then occur as to what becomes of both the credit and the Hyde protections. Some within the administration have argued that the Department of Health and Human Services (HHS) can institute pro-life protections through regulations, but administration insiders doubt HHS’ authority to do so. Moreover, most pro-life groups publicly denounced President Obama’s March 2010 executive order, which he claimed would prevent taxpayer funding of abortion coverage in Obamacare, as 1) insufficient and 2) subject to change under a future administration. How would those pro-life groups view a regulatory change by the current administration any differently?

Two Procedural Problems Related to Immigration

A similarly controversial issue—immigration—brings an even larger set of procedural challenges. Apart from the separate question of whether the current verification provisions in the House bill are sufficiently robust, any eligibility verification regime for tax credits faces not one, but two major procedural obstacles in the Senate.

Of the six tests under the Byrd rule, some are more fatal than others. For instance, if the Hyde amendment restrictions outlined above are ruled incidental in nature, then those provisions merely get stricken from the bill unless 60 Senators vote to retain them—a highly improbable scenario in this case.

Page 37 of the Ways and Means title of the bill requires creation of a verification regime for tax credits similar to that created under Sections 1411 and 1412 of Obamacare. As Joint Committee on Taxation Chief of Staff Tom Barthold testified last week during the Ways and Means Committee markup, verifying citizenship requires use of a database held by the Department of Homeland Security’s Bureau of Citizenship and Immigration Services (CIS).

That admission creates a big problem: The tax credit lies within the jurisdiction of the Senate Finance Committee, but CIS lies within the jurisdiction of the Senate Homeland Security and Governmental Affairs Committee. And because the Finance Committee’s portion of the reconciliation bill can affect only programs within the Finance Committee’s jurisdiction, imposing programmatic requirements on CIS to verify citizenship status could exceed the Finance Committee’s scope—potentially jeopardizing the entire bill.

The verification provisions in Sections 1411 and 1412 of Obamacare also require using  Social Security numbers, triggering another potentially fatal blow to the entire bill. Senate sources report that, during drafting the original reconciliation bill repealing Obamacare in the fall of 2015, Republicans attempted to repeal the language in Obamacare (Section 1414(a)(2), to be precise) giving the HHS secretary authority to collect and use Social Security numbers to establish eligibility. However, because Section 1414(a)(2) of Obamacare amended Title II of the Social Security Act, Republicans ultimately did not repeal this section of Obamacare in the reconciliation bill because it could have triggered a point of order fatal to the legislation.

If both the points of order against the verification regime are sustained, Congress will have to re-write the bill to create an eligibility verification system that 1) does not rely on the Department of Homeland Security and 2) does not use Social Security numbers. Doing so would create both political and policy problems. On the political side, the revised verification regime would exacerbate existing concerns that undocumented immigrants may have access to federal tax credits.

But the policy implications of a weaker verification regime might actually be more profound. Weaker verification would likely result in a higher score from CBO and JCT—budget scorekeepers would assume a higher incidence of fraud, raising the credits’ costs. House leaders might then have to reduce the amount of their tax credit to reflect the higher take-up of the credit by fraudsters taking advantage of lax verification. Any reduction in the credit amounts would bring with it additional political and policy implications, including lower coverage rates.

Concerns over the Tax Credit Firewall

Finally, the tax credit “firewall”—designed to ensure that only individuals without access to other health insurance options receive federal subsidies—could also present procedural concerns. Specifically, pages 27 and 28 of the bill make ineligible for the credit individuals participating in other forms of health insurance, several of which—Tricare, Veterans Administration coverage, coverage for Peace Corps volunteers, etc.—lie outside the Finance Committee’s jurisdiction.

If the Senate parliamentarian advises for the removal of references to these programs because they lie outside the Finance Committee’s jurisdiction, then participants in those programs will essentially be able to “double-dip”—to receive both the federal tax credit and maintain their current coverage. As with the immigration provision outlined above, such a scenario could significantly increase the tax credits’ cost, requiring offsetting cuts elsewhere, which would have their own budgetary implications.

Senate sources indicate this “firewall” concern could prove less problematic than the immigration concern outlined above. While the immigration provision extends new programmatic authority to the administration to develop a revised eligibility verification system, the “firewall” provisions have the opposite effect—essentially excluding Tricare and other program recipients from the credit. However, if the parliamentarian gives guidance suggesting that some or all of the “firewall” provisions must go, that will have a significant impact on the bill’s fiscal impact.

Broader Implications Of These Procedural Problems

Both individually and collectively, these four potential procedural concerns hint at an intellectual inconsistency in the House bill’s approach, one Yuval Levin highlighted in National Review last week. House leaders claim their bill was drafted to comply with the Senate reconciliation procedures. But the bill itself contains numerous actual or potential violations of those procedures and amends some of Obamacare’s insurance regulations, rather than repealing them outright, making their argument incoherent.

Particularly on Obamacare’s costly insurance regulations, there seems little reason not to make the “ol’ college try,” and attempt to repeal the major mandates that have raised premium levels. According to prior CBO scores, other outside estimates, and the Obama administration’s own estimates, the major regulations have significant budgetary effects.

Republicans can and should argue to the parliamentarian that the regulations’ repeal would be neither incidental nor extraneous—their repeal would remove the terms and conditions under which Obamacare created its insurance subsidies in the first place, thus meeting the Byrd test. If successful, such efforts would provide relief on the issue Americans care most about: Reducing health costs and staggering premium increases.

On the tax credit itself, Republicans may face some difficult choices. Abortion and immigration present thorny—and controversial—issues, either of which could sink the legislation. On the bill’s tax credits, the “Byrd bath,” in which the parliamentarian gives guidance on what provisions can remain in the reconciliation bill, could become a bloodbath. If pro-life protections and eligibility verification come out of the bill, a difficult choice for conservatives on whether to support tax credits will become that much harder.

This post was originally published at The Federalist.

Who’s Responsible for the Shutdown?

All around the country, Americans are asking one question: Who’s responsible for the shutdown? And no, we’re not talking about the government slowdown—we’re talking about the Obamacare shutdown.

All claims to the contrary, Obamacare has been effectively shut down—people are running into roadblocks and error messages when trying to enroll in plans. And the New York Times this morning explains that one of the major problems in getting exchanges to work has been a database created by the federal government:

One bottleneck identified by state officials on Wednesday seemed to be occurring when state-run exchanges communicate with the federal data “hub” to verify a person’s citizenship, identity and income through agencies like the Internal Revenue Service and the Department of Homeland Security.

About 18,000 people had created accounts on Nevada’s exchange by midafternoon Wednesday, said C. J. Bawden, a spokesman. But he said processing was slowed by trouble communicating with the federal system to establish their identity and eligibility, one of the last steps in the process. Minnesota officials also reported problems with the identity checking process. “We have it corrected as of now, but it was a federal-side problem,” Mr. Bawden said.

In other words, both state-based and federally run exchanges can’t function properly, because the federal government dropped the ball in creating a technically competent database.

The data hub brings with it other concerns, over and above the current inability for applicants to enroll in plans. Because the hub links to many government databases containing Social Security, tax, and other sensitive personal data, a breach of the hub could lead to identity theft and other frauds.

Given the rushed implementation process, and the federal government’s poor track record when it comes to cybersecurity, many Americans should be worried that the data hub’s initial problems may represent the tip of the iceberg.

Despite the fact that Obamacare seems to be doing a good job of collapsing under its own weight, Congress should still act to prevent any more federal taxpayer dollars from being used to implement this inherently unworkable law—and to keep taxpayers’ information safe.

This post was originally published at The Daily Signal.

Morning Bell: Obamacare, Simplified

With open enrollment in Obamacare’s exchanges set to start in fewer than three months, the law’s supporters are attempting to change the subject from Obamacare’s many delays and glitches. Instead, they’re mounting a campaign to sell the unpopular measure to the public.

President Obama yesterday gave a speech on Obamacare, trying to justify the fact that premiums continue to rise, violating his 2008 campaign promise to lower them by $2,500 per family per year. The Kaiser Family Foundation even released a video that attempts to simplify and explain the 2,700-page measure.

But there’s another helpful chart that shows how Obamacare will work, and it’s taken from an official report released by government auditors. Click on the image below to see how the Treasury’s inspector general for tax administration explained the Obamacare enrollment process, in testimony before the House Oversight Committee on Wednesday:

President Obama's Plan to "Simplify" Your Health Care

The process for determining subsidy eligibility could require 21 different steps, involving at least five separate entities—the Social Security Administration, the Department of Homeland Security, the Department of Health and Human Services, the Internal Revenue Service, and state exchanges—and utilizing a process called the Income and Family Size Verification Project.

Given this bureaucratic nightmare, it’s little wonder that another report from government auditors released last month said that “critical” deadlines to create the Obamacare exchanges had been missed. Nor should any be surprised that yesterday, Treasury’s inspector general for tax administration testified it “is concerned that the potential for refund fraud and related schemes could increase” due to Obamacare.

Yet the Obama Administration believes spending more money will solve the problem. Just for the IRS implementation of Obamacare, the Administration requested $439.6 million for nearly 2,000 bureaucrats.

Obama yesterday attempted to portray Obamacare as defending Americans from insurance companies. But who will defend the American people from Obamacare? The law’s confusing maze of programs, regulations, and processes brings to mind Ronald Reagan’s famous maxim that “the nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’”

If a picture is normally worth a thousand words, the Obamacare chart above should be worth trillions. Because Congress—seeing that Obamacare is not just too big to fail, but too big to succeed—should refuse to spend a single dime implementing this behemoth of a health care law.

This post was originally published at The Daily Signal.

Important Points on the Medicare Trigger

Virtually all independent experts have confirmed what most of the public already knows: Rising health care costs and the retirement of the Baby Boomers make Medicare’s financial future precarious.  Yet while Republicans have advanced plans to improve this important program’s solvency, Democrats seem intent on ignoring the looming entitlement crisis until it is too late.

Medicare Comprises a Large—and Growing—Share of Government Spending

In 2006, the Centers for Medicare and Medicaid Services reports that Medicare outlays were $408.3 billion.  Comparable 2006 data from other government agencies demonstrates the relative size of Medicare’s budget:

  • If Medicare were its own country, it would have the 17th largest economy of the 180 national economies ranked by the World Bank.
  • Federal Medicare spending exceeds the total national GDP of the 16 countries that comprise southern Africa combined.
  • The federal government spends more money on Medicare than the Departments of Agriculture, Education, Energy, Homeland Security, Transportation, and Veterans Affairs spend combined.
  • The Medicare actuaries predict that over the next decade, Medicare spending will rise by an average 7.4% per year—more if scheduled reductions in physician payments do not take effect.

Medicare Faces a Bleak Financial Future

Projections from the Congressional Budget Office (CBO) and the annual report issued by the Medicare trustees provide some indication of the scope of the fiscal problems facing Medicare in the future:

  • The Medicare trustees report released in March projected that the Medicare Hospital Insurance Trust Fund will be exhausted in 2019—just over a decade from now.
  • The trustees also project that overall spending on Medicare will rise from its 2006 level of 3.1% of GDP to reach 7.0% of GDP by 2035 and 10.8% GDP by 2082—nearly twice the size of Social Security, and more than one dollar out of every ten spent (public or private) nationwide.
  • CBO estimates—which, unlike the trustees’ report, presume that health costs will continue to rise at a pace consistent with past trends—that Medicare alone will constitute 17% of GDP by 2082—a nearly sixfold increase from 2006 and equal to all health care spending (private and public) today.
  • A former Medicare trustee found that, in order to solve the program’s funding shortfall, Part B premiums would need to rise to over $3,000-$5,000 per month in today’s money if the share of general revenue Medicare funding remains constant.

Democrats Have No Plan to Restore Medicare’s Solvency

While the Congressional Budget Office has concluded that “the main message [from both reports] is that health care spending is projected to rise significantly and that changes in federal law will be necessary to avoid or mitigate a substantial increase in federal spending on Medicare,” Democrats have not acted to fix the problem:

  • When the Medicare trustees released their report noting that Medicare faces nearly $86 trillion in unfunded obligations, Ways and Means Health Subcommittee Chairman Pete Stark responded by saying, “I don’t think it makes any difference what [the trustees] say” about the precarious state of Medicare’s funding.
  • Former Comptroller General David Walker has noted that each year Congress does not act to reform its entitlement obligations, the size of the debt the next generation of Americans face grows by $2 trillion.
  • Republicans have put forth several proposals to close the size of the Medicare funding gap—but Democrats would rather grow the federal debt than take reasonable steps to slow the growth of America’s massive government programs.