California Is What’s Wrong with Obamacare

In recent days, California lawmakers have finalized their budget. The legislation includes several choices regarding health care and Obamacare, most of them incorrect ones. Doling out more government largesse won’t solve rising health costs, and it will cause more unintended consequences in the process.

Health Coverage for Individuals Unlawfully Present

This move has drawn the most attention, as the budget bill expands Medicaid coverage to illegally present adults aged 19-26. California will pay the full share of this Medicaid spending, as the federal government will not subsidize health coverage for foreign citizens illegally present in the United States.

As to those who disagree with this move, one can study the words of none other than Hillary Clinton. In 1993, she testified before Congress in opposition to giving illegal residents full health benefits, because “illegal aliens” were coming to the United States for health care even then:

We do not think the comprehensive health care benefits should be extended to those who are undocumented workers and illegal aliens. We do not want to do anything to encourage more illegal immigration into this country. We know now that too many people come in for medical care, as it is. We certainly don’t want them having the same benefits that American citizens are entitled to have.

If Clinton’s words don’t sound compelling enough, consider one way that California may finance these new benefits: By reinstating Obamacare’s individual mandate. To put it another way, people who obey the law (i.e., the mandate) will fund free health coverage for people who by definition have broken the law by coming to, or remaining in, the United States unlawfully.

A Questionable Individual Mandate

This issue faces multiple questions on both process and substance. First, the budget bill includes about $8 million for the state’s Franchise Tax Board to implement an individual mandate, but doesn’t actually contain language imposing the mandate. The bill that would reimpose the mandate, using definitions originally included in the federal law, passed the Assembly late last month, but faces opposition in the Senate.

Third, implementing the mandate imposes legal and logistical challenges. I argued in the Wall Street Journal last fall that states cannot require employers who self-fund health coverage to report their employees’ insurance coverage to state authorities. The mandate bill the Assembly passed does not include such a requirement.

Without a reporting requirement on employers, a mandate could become toothless, because the state would have difficulty verifying coverage to ensure compliance—people could lie on their tax forms and likely would not get caught. However, imposing a reporting regime, either through the mandate bill or regulations, would invite an employer to claim that federal labor law (namely, the Employee Retirement Income Security Act) prohibits such a state-based requirement.

More Spending on Subsidies

While the budget bill does not include an explicit insurance mandate, it does include more than $295 million to “provide advanceable premium assistance subsidies during the 2020 coverage year to individuals with projected and actual household incomes at or below 600 percent of the federal poverty level.”

Obamacare epitomized the problems that policy-makers face in subsidizing health insurance. The federal law includes a subsidy “cliff” at 400 percent of the poverty level. Households making just under that threshold can receive federal subsidies that could total as much as $5,000-$10,000 for a family, but if their income rises even one dollar above that “cliff,” they lose all eligibility for those subsidies.

By penalizing individuals whose incomes rise even marginally, the subsidy “cliff” discourages work. That’s one of the main reasons the Congressional Budget Office said Obamacare would reduce the labor supply by the equivalent of 2.5 million full-time jobs.

California decided to replace these work disincentives with yet more spending on subsidies. This year, the federal poverty level stands at $25,750 for a family of four—which makes 600 percent of poverty equal to $154,500. In other words, a family making more than $150,000 will now classify as “low-income” for purposes of the new subsidy regime.

Hypocrisy by Officials

The individual mandate bill gives a significant amount of authority for its implementation to Covered California, the state’s insurance exchange. The bill says the exchange will determine the amount of the mandate penalty, and determine who receives exemptions from the mandate.

Who runs California’s exchange? None other than Peter Lee, the man I previously profiled as someone who earns $436,800 per year, yet refuses to buy the exchange coverage he sells. Or, to put it another way, if the mandate passes, Lee will be standing in judgment of individuals who refuse to do what he will not—buy an Obamacare plan.

If you think that seems a bit rich, you would be correct. But it epitomizes the poor policy choices and hypocritical actions taken by officials to prop up Obamacare in California.

This post was originally published at The Federalist.