Analyzing the Gimmicks in Warren’s Health Care Plan

Six weeks ago, this publication published “Elizabeth Warren Has a Plan…For Avoiding Your Health Care Questions.” That plan came to fruition last Friday, when Warren released a paper (and two accompanying analyses) claiming that she can fund her single-payer health care program without raising taxes on the middle class.

Both her opponents in the Democratic presidential primary and conservative commentators immediately criticized Warren’s plan for the gimmicks and assumptions used to arrive at her estimate. Her paper claims she can reduce the 10-year cost of single payer—the amount of new federal revenues needed to fund the program, over and above the dollars already spent on health care (e.g., existing federal spending on Medicare, Medicaid, etc.)—from $34 trillion in an October Urban Institute estimate to only $20.5 trillion. On top of this 40 percent reduction in the cost of single payer, Warren claims she can raise the $20.5 trillion without a middle-class tax increase.

Let the Individual Mandate Die

In May New Jersey imposed a health-insurance mandate requiring all residents to buy insurance or pay a penalty. More states will feel pressure to follow suit in the coming year as the federal mandate’s penalty disappears Jan. 1 and state legislatures reconvene, some with new Democratic majorities intent on “protecting” Obamacare. But conflicts with federal law will make state-level health-insurance mandates ineffective or unduly onerous, and governors and legislatures would do well to steer clear.

While states can require citizens to purchase health coverage, they will have trouble ensuring compliance. Federal law prohibits the Internal Revenue Service from disclosing tax-return data, except under limited circumstances. And there is no clear precedent allowing the IRS to disclose coverage data to verify compliance with state insurance requirements.

Accordingly, mandates enacted in New Jersey and the District of Columbia earlier this year created their own coverage-reporting regimes. But those likely conflict with the Employee Retirement Income Security Act, or ERISA, which explicitly pre-empts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.” The point is to protect large employers who self-insure workers from 50 sets of conflicting state laws.

No employer has used ERISA to challenge Massachusetts’ 2006 individual mandate, which includes reporting requirements, but that doesn’t mean it’s legal. Last month a Brookings Institution paper conceded that “state requirements related to employer benefits like health coverage may be subject to legal challenge based on ERISA preemption.”

A 2016 Supreme Court ruling would bolster such a challenge. In Gobeille v. Liberty Mutual, the court struck down a Vermont law that required employers to submit health-care payment claims to a state database. The court said the law was pre-empted by ERISA.

Writing for a six-justice majority, Justice Anthony Kennedy noted the myriad reporting requirements under federal law. Vermont’s law required additional record-keeping. Justice Kennedy concluded that “differing, or even parallel, regulations from multiple jurisdictions could create wasteful administrative costs and threaten to subject plans to wide-ranging liability.”

Justice Kennedy’s opinion provides a how-to manual for employers to challenge state-level insurance mandates. A morass of state-imposed insurance mandates and reporting requirements would unnecessarily burden employers with costs and complexity. It cries out for pre-emptive relief.

Unfortunately, policy makers have ignored these concerns. Notes from the working group that recommended the District of Columbia’s individual mandate never mention the reporting burden or ERISA pre-emption. And in August the federal Centers for Medicare and Medicaid Services approved New Jersey’s waiver application that relied in part upon funding from that state’s new individual mandate, even though money from the difficult-to-enforce requirement may never materialize.

States already cannot require federal agencies to report coverage. This means their mandates won’t track the 2.3 million covered by the Indian Health Service, 9.3 million receiving health care from the Veterans Administration, 8.8 million disabled under age 65 who are enrolled in Medicare, 9.4 million military Tricare enrollees and 8.2 million federal employees and retirees.

If a successful ERISA challenge also exempts some of the 181 million with employer-based insurance from coverage-reporting requirements, state insurance mandates become farcical. States would have to choose between mandates that run on the “honor system”—thus likely rife with cheating—or taking so much time and energy to verify coverage that administration becomes prohibitively expensive.

States should take the hint and refrain from even considering their own coverage mandates. But if they don’t, smart employers should challenge the mandate’s reporting requirements. They’d likely win.

This post was originally published at The Wall Street Journal.

How an Obscure Regulatory Change Could Transform American Health Insurance

Between the election campaign and incidents of terrorism ranging from attempted bombings to a synagogue shooting, an obscure regulatory proposal by the Trump administration has yet to captivate the public’s attention. However, it has the potential to change the way millions of Americans obtain health insurance.

In the United States, unique among industrialized countries, most Americans under age 65 receive health coverage from their employers. This occurs largely due to an Internal Revenue Service (IRS) ruling issued during World War II, which excluded health insurance coverage from income and payroll taxes. (Businesses viewed providing health insurance as one way around wartime wage and price controls.)

The Trump administration’s proposed rule would, if finalized, allow businesses to make a pretax contribution towards individual health insurance—that is, coverage that individuals own and select, rather than employers. This change may take time to have an impact, but it could lead to a much more portable system of health insurance—which would help to solve the pre-existing condition problem.

How Would It Work?

Under the proposed rule, employers could provide funds through a Health Reimbursement Arrangement (HRA) to subsidize the purchase of individual health insurance. Employers could provide the funds on a pretax basis, and—provided that the workers purchase their coverage outside of the Obamacare exchanges—employees could pay their share of the premiums on a tax-free basis as well.

In practical terms, some employers may choose to provide a subsidy for health coverage—say, $300 per month, or $5,000 per year—in lieu of offering a firm-sponsored health plan. Individuals could go out and buy the plan they want, which covers the doctors whom they use, rather than remaining stuck with the plan their employer offers. And employers would get better predictability for their health expenses by knowing their exposure would remain fixed to the sums they contribute every year.

Could Employers Game the System?

The proposed rule acknowledged the possibility that employers might try to “offload” their costliest patients into individual health coverage, lowering expenses (and therefore premiums) for the people who remain. The rule contains several provisions designed to protect against this possibility.

Employers must choose to offer either an HRA contribution towards individual coverage or a group health plan. They cannot offer both options, and whatever option they select, they must make the same decision for an entire class of workers.

A “class” of workers would mean all full-time employees, or all part-time employees, or all employees under one collective bargaining agreement. Hourly and salaried workers would not count as separate “classes,” because firms could easily convert workers from one form of compensation to another. These provisions seek to ensure that firms will offer some employees health insurance, while “dumping” other employees on to individual coverage.

Can Workers Buy Short-Term Coverage with Employer Funds?

Yes—and no. The proposed rule would allow HRA funds to purchase only individual (i.e., Obamacare-compliant) health insurance coverage, not short-term insurance.

However, the rule creates a separate type of account to which employers could contribute that would fund workers’ “excepted benefits.” This term could include things like long-term care insurance, vision and dental insurance, and the new short-term plans the Trump administration has permitted. But employers could only fund these accounts up to a maximum of $1,800 per year, and they could create these special “excepted benefits” accounts only if they do not offer an HRA that reimburses workers for individual insurance, as outlined above.

Will Firms Drop Health Coverage?

Some firms may explore the HRA option over time. However, the extent to which businesses embrace defined-contribution coverage may depend upon the viability of the individual health insurance market, and the status of the labor market.

However, if and when more insurers return to the marketplace, firms may view the defined-contribution method of health coverage as a win-win: employees get more choices and employers get predictability over health costs. Particularly if unemployment ticks upward, or one firm in an industry makes the move towards the HRA model, other businesses may follow suit in short order.

Will the Proposal Cost Money?

It could. The proposed rule should cost the federal government $29.7 billion over the first ten years. That estimate assumes that 800,000 firms, offering coverage to 10.7 million people, will use the HRA option by 2028. (It also assumes an 800,000 reduction in the number of uninsured Americans by that same year.)

The cost, or savings, to the federal government could vary widely, depending on factors like:

  • Whether firms using the HRA option previously offered coverage. If firms that did not offer coverage take the HRA option, pretax health insurance payments would increase, reducing tax revenues. (The rule assumes a reduction in income and payroll tax revenue of $13 billion in 2028.)
  • Whether individuals enrolling in individual market coverage via the HRA option are more or less healthy than current enrollees. If the new enrollees are less healthy than current enrollees, individual market premiums will rise, as will spending on Obamacare subsidies for those individuals. (The rule assumes a 1 percent increase in individual market premiums, and thus exchange subsidies.)
  • The extent to which HRAs affect eligibility for Obamacare subsidies. If some low-income individuals whose employers previously did not offer coverage now qualify for HRA subsidies, they may lose eligibility for Obamacare subsidies on the exchanges. (The rule assumes a reduction in Obamacare subsidies of $6.9 billion in 2028.)

Given the many variables in play, the rule has a highly uncertain fiscal impact. It could cost the federal government billions (or more) per year, save the federal government similar sums, or have largely offsetting effects.

An Overdue (and Welcome) Change

The proposed rule would codify the last element of last October’s executive order on health care. It follows the release of rules regarding both short-term health insurance and association health plans earlier this year.

Ironically, the Trump administration represents but the most recent Republican presidency to examine the possibility of defined-contribution health insurance. While working on Capitol Hill in 2008, I tried to encourage the Bush administration to adopt guidance similar to that in the proposed rule. However, policy disagreements—including objections raised by, of all places, scholars at the Heritage Foundation—precluded the Bush administration from finalizing the changes.

Since I’ve fought for this concept for more than a decade, and included it in a series of regulatory changes the administration needed to make in a paper released shortly before Trump took office, I can attest that this change is as welcome—and needed—since it is overdue. Although overshadowed at the time of its release, this rule could have a substantial effect on Americans’ health insurance choices over time.

This post was originally published at The Federalist.

House Health Care Bills Show Misplaced Priorities

Why would House Republican leadership place the concerns of gym owners over those of pro-lifers? And why would that same leadership embrace a policy suggestion from the liberal group Families USA that could entrench Obamacare while raising premiums for young people?

While the House will consider legislation this week providing tax breaks to individuals who buy gym memberships, the House has yet to consider legislation cutting off tax breaks for abortion this Congress. On the latter front, an expansion of “copper” catastrophic insurance plans would effectively eliminate a regulatory provision that has lowered premiums for young Americans—another misplaced priority that could cause consternation for some conservatives.

What’s Inside Some Health Savings Account Legislation

However, Section 8 of one of the bills would allow for a $500 deduction for gym memberships or instruction, and a $250 deduction for safety equipment, as a qualified medical expense. The amounts would double for joint returns.

While just about everyone supports increasing Americans’ levels of physical activity, the provision seems questionable at best. The tax reform bill enacted not eight months ago attempted to eliminate these kinds of deductions from the tax code, creating a simpler, fairer process. This proposal would turn right around and add more complexity, by requiring the IRS to issue new regulations “to determine…what does not constitute a qualified physical activity, including golf, hunting, sailing, horseback riding, and other similar activities.”

The federal government already tries to do too many things, and has too great a role in Americans’ lives as it is. Do we really need the IRS determining what is, and is not, a “qualified physical activity?”

As for Abortion and HSAs

In fact, some pro-life leaders have opposed provisions that would allow individuals to use HSA dollars to fund insurance premiums, because pro-lifers want to prohibit those funds from being used to pay for abortion coverage (or abortions period). But the House has yet to vote this Congress on limiting abortion as a qualified medical expense.

The pro-life legislation that the House voted on in January 2017, H.R. 7, sponsored by Rep. Chris Smith (R-NJ), prohibited taxpayer dollars from funding abortion in all cases, including Obamacare exchange plans. However, it did not address preferences in the tax code relating to abortion, such as the qualified medical expense deduction.

It seems that the House Ways and Means Committee, which marked up the bills in question, cares more about satisfying lobbyists than responding to their large pro-life constituency. From gym owners to device makers—who have lobbied intently for the Obamacare device tax repeal that the House will also consider this week—the series of health care bills contains myriad provisions, some good and some not-so-good, advocated by business lobbyists. Unfortunately, pro-life advocates have yet to receive similar consideration.

Unintended Consequences of Expanding ‘Copper’ Plans

However, because only certain individuals currently qualify for “copper” plans, insurers can adjust their premiums downward accordingly. Section 1312 of Obamacare contains a single risk pool requirement, meaning that insurers must rate all their products in a given state as a single book of business in determining premium rates. But a rule the Obama administration released in 2013 included a special exception to that provision for “copper” plans. These catastrophic plans may adjust their rates to reflect “the expected impact of the specific eligibility categories.”

In other words, because primarily young individuals enroll in catastrophic plans, insurers can at present lower their premiums to reflect that fact. However, by making everyone eligible for “copper” coverage, the House bill would effectively eliminate this adjustment, thus raising premiums for the 18- to 29-year-old individuals enrolled in the plans.

Effects of the ‘Copper’ Change

Catastrophic plans have not proven particularly popular on the exchange market, with only 1 percent of enrollees purchasing them as of earlier this year. However, that lack of popularity arises because individuals receiving premium subsidies (i.e., most of the people buying coverage directly from the exchange) cannot apply those subsidies to “copper” plans.

Paradoxical as it may sound, expanding these popular plans to all age groups could actually curb their appeal. While a recent eHealth analysis claims that an expansion of “copper” plans could save near-seniors (i.e., those aged 55-64) an average of $4,608 per year, it likely will not do so. eHealth’s analysis compares the current 41 percent differential between “copper” premiums and bronze premiums to arrive at its figure.

However, as noted above, the current “copper” rates assume enrollment primarily by individuals under 30. eHealth’s analysis thus compares rates for a market of individuals aged 18-29 to a market of individuals aged 18-64—which explains the 41-percentage point difference in premiums. But if “copper” plans expand to all ages, that premium differential will narrow—and premiums for the 18-29 population will likely increase.

Single Risk Pool Bolsters Obamacare

More to the point: The “copper” plan provision includes language reinforcing Obamacare’s single risk pool. It also undermines the intent of last year’s Consumer Freedom Amendment, offered in the Senate by Sen. Ted Cruz (R-TX), which would have allowed for the sale of non-compliant plans alongside Obamacare-compliant plans.

The difference on this one provision speaks to a broader philosophical debate. Moderates want to support Obamacare’s exchanges by passing “stability” legislation and expanding subsidies. So does Families USA, which in December 2012 submitted a comment to the Department of Health and Human Services opposing the rate adjustment provision for catastrophic plans, because it could tend to segment the market.

By contrast, conservatives want to offer people lifeboats away from the exchanges—options such as short-term insurance plans, association health plans, and the like. On that front, this week’s legislation does not advance the ball, and expanding “copper” plans could on balance represent a step back.

Thankfully, House leadership did not end up attaching attach an insurer bailout to this week’s HSA bills, after early rumblings in that direction. But the fact that conservatives even need to have these discussions speak to the ways in which many House Republicans want to strengthen Obamacare rather than repealing it.

This post was originally published at The Federalist.

Liberals’ New Plan to Take Over the Health Care System

The Center for American Progress proposed a plan for government-run health care Thursday, which the liberal think tank calls “Medicare Extra.”

Unlike Bernie Sanders’ single-payer system, which would abolish virtually all other forms of insurance, the plan would not ban employer coverage outright — at least not yet. In broad strokes, CAP would combine Medicaid and the individual insurance market into Medicare Extra, and allow individuals with other coverage, such as employer plans, traditional Medicare or VA coverage, to enroll in Medicare Extra instead.

The goal of CAP’s plan is to grow government, and to grow dependence on government. The paper omits many important policies, such as how to pay for the new spending. Here are some of the major objectives and concerns.

If You Like Your Obamacare, Too Bad

After attacking Republicans for wanting to “taking away health insurance from millions,” CAP would … take away health insurance from millions. The plan would effectively eliminate Obamacare’s insurance exchanges, and all individual health insurance: “With the exception of employer-sponsored insurance, private insurance companies would be prohibited from duplicating Medicare Extra benefits, but they could offer complementary benefits during an open enrollment period.”

Other sections of the plan (discussed further below) suggest that private insurers could offer Medicare Choice coverage as one element of Medicare Extra. CAP indicates that persons purchasing coverage on the individual market would have a “choice of plans.” But didn’t Obamacare promise that already — and how’s that working out? For that matter, what happened to that whole “If you like your plan, you can keep it” concept?

Mandatory Health Insurance — And A $12,550 Tax

The plan reinstates a mandate to purchase health insurance: “Individuals who are not enrolled in other coverage would be automatically enrolled in Medicare Extra … Premiums for individuals who are not enrolled in other coverage would be automatically collected through tax withholding and on tax returns.”

While the plan says that those with incomes below the tax filing threshold “would not pay any premiums,” it excludes one important detail — the right to opt out of coverage. Therefore, the plan includes a mandate, enforced through the tax code, and with the full authority of the Internal Revenue Service. (Because you can’t spell “insurance” without I-R-S.) The plan indicates that for families with incomes between 150 and 500 percent of the poverty level, “caps on premiums would range from 0 percent to 10 percent of income. For families with income above 500 percent of [poverty], premiums would be capped at 10 percent of income.”

In 2018, the federal poverty level stands at $25,100 for a family of four, making 500 percent of poverty $125,500. If that family lacks employer coverage (remember, the plan prohibits individuals from buying any other form of private insurance), CAP would tax that family 10 percent of income — $12,550 — to pay for its Medicare Extra plan.

Wasteful Overpayments Controlled By Government Bureaucrats

As noted above, the plan would allow insurers to bid to offer Medicare Choice coverage, but with a catch: Payments provided to these plans “could be no more than 95 percent of the Medicare Extra premium.” CAP claims that “this competitive bidding structure would guarantee that plans are offering value that is comparable with Medicare Extra.”

It does no such thing. By paying private plans only 95 percent of the government-run plan’s costs, the bidding structure guarantees that private plans will provide better value than the government-run plan. Just as CAP decried “wasteful overpayments” to private insurers in Medicare Advantage, the CAP proposal will allow government bureaucrats to control billions of dollars in wasteful federal government spending on Medicare Extra.

Costs To States

As noted above, CAP envisions the federal government taking over Medicaid from the states, “given the continued refusal of many states to expand Medicaid and attempts to use federal waivers to undermine access to health care.”

But the plan also requires states to continue to make maintenance-of-effort payments even after the federal government takes Medicaid away from state jurisdiction. Moreover, the plan by its own admission “giv[es] a temporary discount [on the maintenance-of-effort provisions] to states that expanded their Medicaid programs” under Obamacare — effectively punishing states for a choice (i.e., to expand or not expand) that the Supreme Court made completely voluntary. And finally, it requires “states that currently provides benefits … not offered by Medicare Extra … to maintain those benefits,” leaving states perpetually on the hook for such spending.

Would Employer Coverage Really Remain?

The plan gives employers theoretical options regarding their health coverage. Employers could continue to offer coverage themselves, subject to certain minimum requirements. Alternatively, they could enroll their employees in Medicare Extra, with three possible sources of employer funding: Paying 70 percent of workers’ premiums, making maintenance-of-effort payments equal to their spending in the year preceding enactment, adjusted for inflation, or “simpler aggregated payments in lieu of premium contributions,” ranging from 0 to 8 percent of payroll. (The plan would exempt employers with under 100 full-time equivalent workers from making any payments.)

Two questions linger over these options: First, would employer coverage remain? CAP obviously wishes that it would not in the long-term, while recognizing the political problems associated with an abrupt transition. Second, could employers game the system among the various contribution options? While details remain unclear, any plan that sets up two systems (let alone four) represents a classic arbitrage opportunity. If employers act rationally, they could end up reducing their own costs in a way that significantly increases the federal government’s obligations.

Higher Health Spending

CAP advertises its plan as providing “zero or low deductibles, free preventive care, free treatment for chronic disease” — the source of 75 percent of American health care spending — and “free generic drugs.” It would also expand coverage of long-term care services not covered by Medicare (and only partially covered by Medicaid). But all this “free” stuff won’t come cheap.

In analyzing Bernie Sanders’ health care plan, the liberal Urban Institute estimated that it would increase overall health spending by 22.1 percent. Notably, the Urban researchers estimated that Sanders’ plan would raise spending by people who currently have health insurance by almost the same amount, or 15.1 percent, because the lack of cost-sharing will encourage individuals to increase their consumption of care. With the CAP plan apparently proposing that government fully subsidize more than three quarters of health care spending, its proposal will increase health care costs almost as much as Sanders’.

The CAP plan proposes measures to lower costs — namely price controls (i.e., Medicare dictating prices to doctors, hospitals, and drug companies), with some token references to other policies like bundled payments and limiting the tax preference for employer-sponsored insurance. But if those proposals go the way of Obamacare’s “Cadillac tax” — potentially never implemented because politicians of both parties lack the discipline to control health care spending — then the plan will only raise health costs rather than lower them.

Something For Nothing

The plan proposes that families with incomes below 150 percent of poverty ($37,150 for a family of four this year) pay for their coverage the princely sum of … zero dollars. No premiums, no deductibles, no co-payments. Zero. Zip. Zilch. Nada.

And while CAP does not include specific ideas to pay for all the associated new spending, the concepts it does propose largely involve taxing “the rich” (which includes small businesses).

While it doesn’t work as it should — most people “get back” far more than they “pay in” — at least Medicare makes an attempt to have all individuals pay for coverage through the payroll tax. CAP’s plan amounts to a transfer of wealth from one group to another.

Even The New York Times this week highlighted dissent from middle-class families upset at the thought of having to pay for low-income individuals to receive “free” Medicaid. So, CAP might want to rethink what Bill Clinton called “the craziest thing in the world” — making middle-class families pay even more for mandatory insurance ($12,550, anyone?) while certain families contribute not so much as a dime for coverage — along with just about every other element of its health care plan.

This post was originally published at The Federalist.

Four Ways the Patient Freedom Act Is Worse than Obamacare

Last week, I wrote about how the Patient Freedom Act—introduced by senators Bill Cassidy (R-LA) and Susan Collins (R-ME)—would dramatically expand taxpayer funding of abortions, even when compared to Obamacare.

But that’s not the only way in which their bill (S. 191) exceeds Obamacare’s standards for government intervention. Other details of their legislation reveal why its short title serves as a misnomer.

1. It Has More Spending Than Obamacare

Section 104 of the bill contains a complicated formula to determine state allotments for option two—the default option for states under the PFA. Section 104(b)(2) provides that states that did not expand Medicaid under Obamacare will receive 95 percent of the amount they would have received had they accepted the Medicaid expansion.

In other words, rather than reducing Obamacare’s spending, the Patient Freedom Act could well increase it—by giving new Medicaid funds to states that declined to expand.

Medicaid reform should not disadvantage states that did not expand Medicaid under Obamacare. But the proper solution to that problem does not lie in adding to Obamacare’s nearly $2 trillion in spending over the coming decade. Instead, it lies in freezing enrollment in the Medicaid expansion, unwinding that new spending, and transitioning beneficiaries over time off the rolls and into work.

2. It Repeals Health Savings Accounts (Not Obamacare)

Current law makes HSAs tax-privileged in two ways. First, contributions to an HSA can be made on a pre-tax basis—either via a payroll deduction through an employer, or an above-the-line deduction on one’s annual tax return. Second, HSA distributions are not taxable when used for qualified health expenses under Obamacare.

The Patient Freedom Act would abolish the first tax preference while retaining the second. Individuals must contribute to an HSA using after-tax dollars, but their contributions could grow tax-free, and distributions would be tax-free when used for qualified health expenses, as under current law. Section 201(b) prohibits additional contributions to “traditional” HSAs following enactment of the bill, instead diverting new contributions to the Roth (i.e., after-tax) HSAs created by the measure. While the bill does not require individuals to convert their existing HSAs to the new Roth HSAs, account administrators (e.g., banks, mutual funds, etc.) could require their customers to do so at some point—and individuals could face a hefty tax bill when they do.

Health Savings Accounts are a proven vehicle to help control the growth of health costs. While Obamacare included new restrictions on HSAs, Democrats did not upend the accounts nearly as much as contemplated by the Patient Freedom Act. Significantly reducing the tax preferences for Health Savings Accounts would not lower health care costs. If anything, it would raise them.

3. It Supports Government-Imposed Price Controls

Section 121(a)(2) of the Patient Freedom Act goes further than Obamacare, imposing maximum charges for emergency services: 85 percent of insurers’ usual, customary, and reasonable charges for physician care; 110 percent of Medicare payment rates for inpatient and outpatient hospital care; and acquisition costs plus $250 for drugs and biological pharmaceuticals.

While the issue of “surprise” medical bills does present a policy problem—individuals caught in the middle of stand-offs between providers and insurers regarding payment rates—there are other ways to resolve it short of government price controls. To borrow a medical metaphor, the PFA uses a blunt knife when a sharp scalpel would be more appropriate.

4. It Would Create an Automatic Enrollment Program

Sections 105(c) and 107(c) of the PFA create parameters through which states can automatically enroll their residents in health insurance—complete with restrictions on the type of coverage states can auto-enroll individuals into. While individuals can opt out of insurance should they wish to do so, this mandate-without-a-mandate could prove even more problematic than Obamacare’s requirement that all individuals purchase health coverage.

Nearly four years ago, then-Rep. Bill Cassidy said this about the IRS’ power in enforcing Obamacare:

Obamacare requires thousands of IRS agents to implement the law…They’re going to go through the small businesswoman’s books, to make sure that she actually has the number of employees that she claims, and that she has adequate insurance. That’s a little scary when you see what the IRS has been doing with their political targeting.

Granted, the PFA doesn’t have an employer mandate to enforce, but why is Sen. Cassidy’s “solution” to big government overreach at the federal level allowing states to impose their own intrusive requirements on individuals and businesses…?

Conservatives looking to repeal Obamacare should be disappointed by the ways in which the Patient Freedom Act exceeds Obamacare in several key respects, while liberals will undoubtedly oppose its (insufficient) attempts to devolve or deregulate health care to the states. Its Senate sponsors notwithstanding, the bill appears to lack a natural constituency. Or, to put it another way, if the Patient Freedom Act is the answer, then what exactly is the question?

This post was originally published at The Federalist.

The Limousine Liberals Who Won’t Join Obamacare

Even by government standards, it’s an outlandish story of wealth and hypocrisy: A bureaucrat who made more than one million dollars selling Obamacare insurance plans, but won’t buy one for himself? The sad thing is, it also happens to be true.

Meet Peter Lee, Executive Director of Covered California. In the past three years alone, Mr. Lee has made well over one million dollars running California’s Obamacare Exchange. He received massive raises the past two years, going from a salary of $262,644 in 2014 to $420,000 beginning this July. On top of that nearly $160,000 raise, Peter Lee received two other whopping bonuses of $52,258 in 2014 and $65,000 in 2015—winning more in one lump sum than many families make in an entire year. But at a September briefing, I asked Mr. Lee point blank what type of health coverage he holds, and he said he was enrolled in California’s state employee plan.

Think about that: a bureaucrat whose salary comes from selling Exchange plans—Covered California’s operating budget derives from surcharges on plans sold through the Exchange—but yet won’t buy one of the plans he sells for himself. It’s enough to make a person ask how much Mr. Lee would have to make before he would actually break down and buy one of the plans he sells—a million dollars? Two million? Five million?

Liberal One-Percenters: Good for You, Not for Me

I’ll concede right now that Obamacare’s Exchanges were designed primarily for those without employer coverage. Individuals whose employers do offer “affordable” coverage cannot receive subsidies on Exchanges, although they can enroll without a subsidy, if they so choose. Most Americans choose employer coverage, because firms heavily subsidize them—to the tune of an average of $12,865 for family coverage. For the average worker making $60,000, or even $80,000, per year, turning down the employer subsidy to purchase an unsubsidized Exchange plan represents a substantial pay cut, one many families could not afford.

But well-paid liberals like Peter Lee—who over the last two years received raises more than twelve times the average employer’s subsidy for health coverage—have no real financial excuse not to join the Exchanges—other than liberal elitism. As the owner of a new small business who likely won’t make six figures this year, I have little patience to hear supposed believers in Obamacare with far more means than I who won’t give up a few thousand dollars in employer subsidies to enroll on the Exchanges themselves. After all, aren’t liberals the ones who believe in social solidarity and “paying your fair share” anyway…?

Well-Heeled Bureaucrats and Think Tankers’ Hypocrisy

For instance, Centers for Medicare and Medicaid Services (CMS) Acting Administrator Andy Slavitt literally cashed in to the tune of over $4.8 million in stock options on joining the Administration—more than enough to forego any employer subsidy for his health coverage. He recently responded to a questioner on Twitter asking him why he wasn’t on Medicare by stating that he was only 49 years of age—too young to qualify. Within minutes, I sent Slavitt a follow-up tweet: “If Obamacare is so great, are you on the Exchange—and if not, why not?” Slavitt has yet to reply.

Both Slavitt, and Health and Human Services Secretary Sylvia Burwell (net worth: $4.6 million), have plenty of financial resources to forego an employer subsidy and purchase Exchange coverage. Even at a total premium of $15,000 for his family, one year’s insurance costs would total less than 0.3% of the stock gains Slavitt cashed in on when joining the Administration—to say nothing of the millions he likely will make when he “cashes in” on his government experience in just a few months.

Did Slavitt just not see my tweet asking him about his health coverage? Did he not reply because the person in charge of selling Exchange policies doesn’t think they’re good enough to buy one himself? Or does he believe that someone who made millions a few short years ago is too “poor” to give up a few thousand dollars in employer subsidies for his health care?

The ranks of well-paid liberals clamming up when asked about their health benefits extends beyond government, into the think-tank ranks as well. In September, the Urban Institute published a paper claiming that Exchange coverage was actually cheaper than the average employer plan. I e-mailed the papers’ authors, asking them a simple question: Had they taken steps to enroll in Exchange coverage themselves—and encouraged the Urban Institute to send all its employees to the Exchanges?

I have yet to receive a reply from the three researchers. But after doing some digging, I found the Urban Institute’s Form 990 filing with the IRS. The form reveals that one of the study’s authors, John Holahan, received a total of $313,932 in compensation in 2014—$267,051 in salary, and $46,881 in other compensation and benefits. Does Mr. Holahan therefore believe that giving up his subsidized benefits, and relying “only” upon his $267,051 salary, presents too great a sacrifice for him to bear financially? If he and his colleagues truly believe Exchange plans are more efficient than employer coverage—as opposed to just coming up with a talking point to rebut Obamacare’s massive premium increases—then shouldn’t they enroll themselves?

I Make $400,000—So Quit Whining about Your Cost Hike

Then there’s Larry Levitt, a Senior Vice President at the Kaiser Family Foundation. Last week Levitt tweeted that Exchange premium increases don’t apply to many people—a talking point that Drew Altman, Kaiser’s CEO, has also made in blog posts. I replied asking whether Levitt himself, or other people using this talking point, actually have Exchange coverage—to which Levitt gave no response.

Care to guess how much these scholars claiming Exchange premium increases are overrated make themselves? According to Kaiser’s IRS filing, Levitt received $333,048 in salary, and $48,563 in benefits, in 2014. His boss, Drew Altman, pulled down a whopping $642,927 in salary, $149,509 in retirement plan contributions, and a $13,545 expense account—nearly $806,000 in total compensation.

The contradictions from the Kaiser researchers are ironic on two levels. One could certainly argue that an executive making nearly $400,000, let alone over $800,000, doesn’t need comprehensive health insurance—except to protect from severe emergencies, like getting hit by the proverbial bus. However, both appear loathe to give up their employer-provided health coverage—and equally quick to minimize the impact of Obamacare’s premium increases nationwide. As I noted on Twitter, that’s easy for people who refuse to join the Exchanges to say.

Stupid Is What Stupid Does?

Last, but certainly not least, on the hit parade is MIT professor Jonathan “Stupidity of the American Voter” Gruber. Last week Gruber said both that the law “was working as designed” and that people who lost their coverage thanks to the law “never had real insurance to begin with.” Unfortunately, MIT’s tax filings don’t include his salary. However, given that Gruber’s infamous undisclosed contract with the Obama Administration totaled nearly $400,000, and that he literally made millions from other contracts, it’s fair to say Gruber could afford to purchase his own health insurance outside his employer—if he wanted to. So I e-mailed him, and asked him whether he gave up his employer coverage to purchase that “real insurance” that Obamacare provides. Wouldn’t you know, I have yet to receive a reply.

It’s bad enough that the individuals above apparently refuse to give up their platinum-plated health plans to join the Exchanges—even though it would cost them at most a few percentage points of their total compensation to do so. They also wish to cast stones from their ivory towers at those of us who are facing higher premiums, rising deductibles, fewer (if any) choices of insurers, and smaller doctor networks thanks to the law they claim to support.

So to all those well-heeled Obamacare supporters who can afford to enroll in Obamacare themselves, but simply won’t, I’ll make one final point: Disagree with me if you like, but I’m working my damnedest to stop Obamacare’s bailouts—even though I know that if I “win” on the policy, I could lose my health coverage. It’s called standing on principle. It’s a novel concept—you might want to try it sometime.

This post was originally published at The Federalist.

An Insight Into Divisions over Administration Authority to Pay Obamacare Subsidies

A federal district judge ruled this month, in a lawsuit brought by House Republicans, that the Obama administration lacks the authority to pay cost-sharing subsidies to health insurers if Congress has not appropriated the funds. Some civil servants in the administration may agree.

The House Ways and Means Committee released a deposition Tuesday of David Fisher, former chief risk officer for the Internal Revenue Service. In it, Mr. Fisher recounts a series of events in late 2013 and early 2014 regarding the source and legality of Obamacare cost-sharing subsidies to insurers. The administration initially argued that the subsidies were subject to the budget sequester. By early 2014, however, it had shifted to the position that the cost-sharing subsidies were not subject to the sequester and could be paid under the appropriation authority for a separate program of premium subsidies created by the Affordable Care Act.

In the deposition, Mr. Fisher describes a January 2014 meeting at the Office of Management and Budget during which OMB staff showed—but did not allow IRS employees to retain—a memo ostensibly giving the federal government legal authority to combine the cost-sharing and premium subsidies. Mr. Fisher said the legal brief lacked a “single, main argument.” It was “almost a commentary on elements that, in total, would draw the conclusion that these payments out of the permanent appropriation would be appropriate.”

Mr. Fisher said he disagreed with OMB’s legal analysis and believed that there was “no clear reference” to an appropriation for the cost-sharing subsidies in the health-care law. He testified that the IRS’s chief financial officer and deputy chief financial officer shared his concerns. IRS Commissioner John Koskinen allowed employees to air those concerns soon after the OMB meeting, he said, but ultimately allowed the payments to proceed. Mr. Fisher testified that it was “a very strong consensus” of people in “fairly senior positions”—then-Attorney General Eric Holder had received a briefing, Mr. Fisher recalled—that the payments should proceed.

There is a notable point in the deposition: “There could be many other people who think this is about health care. To us,” Mr. Fisher said, referring to himself and others who shared his concerns, “this was not about health care.” The issue is abiding by appropriations law, he said, not least because the Anti-Deficiency Act provides criminal penalties for federal employees who spend funds not legally appropriated.

Democrats on the House Ways and Means Committee objected that Mr. Fisher was subpoenaed to testify, with Rep. Sander Levin calling it “another effort by the majority to try to undermine the Affordable Care Act.” Mr. Fisher, though, testified that he views the issue through a different prism.

Shortly before the federal ruling this month, both the House Ways and Means and the Energy and Commerce Committees issued subpoenas for internal documents relating to the cost-sharing subsidies. The panels have sought these documents for 15 months. The internal deliberations and potential conflicts raised by Mr. Fisher’s testimony could be part of the reason the administration has not released all those documents. It appears that there were questions about the legality of the cost-sharing subsidies within as well as outside the Obama administration.

This post was originally published at the Wall Street Journal Think Tank blog.

How Would Hillary Clinton Pay for Her Obamacare “Fix?”

In a recent interview with the Des Moines Register, Hillary Clinton outlined several elements of Obamacare that she said she would seek to change as president. Her proposals illustrate how the fiscal impact of the law could increase significantly from what was expected when the legislation passed in March 2010.

Among the things Mrs. Clinton cited was “how to fix the family glitch.” In short, if an individual qualifies for “affordable” health insurance through an employer, that person’s family will not qualify for federal insurance subsidies–even if the employer does not offer family coverage or if family coverage is unaffordable for the household.

Supporters of the health-care law may call this a “glitch,” but it is far from an unintended consequence. This provision has worked exactly how Congress wrote it into the Affordable Care Act. As I noted in an earlier Think Tank post, the Joint Committee on Taxation outlined the specifics behind this policy in a footnote on Page 33 of a 157-page summary of the law released the week of its passage. While some congressional Democrats have attempted to argue since then that the provision, as codified by the Internal Revenue Service, was “simply incongruent” with the text, or a “wrong interpretation of the law,” the legislative history indicates otherwise. The provision may have harsh consequences for affected families, but its inclusion was deliberate.

When Congress considered the legislation in 2010, the bill needed to adhere to President Barack Obama’s September 2009 pledge that it would “cost around $900 billion over 10 years.” But to keep the total cost of insurance subsidies—the “gross cost of coverage provisions” in Table 4 here—under $1 trillion, lawmakers made numerous tough choices. For instance, Congress delayed the start of subsidized insurance from January 2013 to January 2014. Congress increased Medicaid payment rates to improve access—but let that increase expire after two years. To pay for higher levels of upfront spending on insurance subsidies, Congress included provisions that slow their growth after 2019—a back-dated reckoning that future Congresses, and families, will have to contend with. And Congress passed—whether lawmakers knew it or not—the “family glitch” provision.

As I wrote in January, undoing all these fiscal constraints will cost money. Mrs. Clinton and other supporters of the law have wish lists of enhanced benefits, but proposals to pay for this new spending have been scarce. Moreover, to the extent that skeptics have likened Obamacare to a subprime mortgage—with “teaser” provisions passed in 2010 and a balloon payment still to come—the long lists of additional spending proposals, with few instances of budgetary restraint, will reinforce those comparisons.

This post was originally published at the Wall Street Journal Think Tank blog.

King v. Burwell and Congressional Intent on Insurance Subsidies

In the big case to be argued before the Supreme Court on Wednesday, supporters of the health-care law maintain that nonpartisan congressional analyses of Obamacare make clear that lawmakers intended on making subsidies available to individuals in all states, even if the precise language is open to interpretation.

But  in at least one other case, the law’s supporters took the opposite tack—ignoring a bipartisan congressional analysis that came up with a conclusion they didn’t like.

Here is what’s happening:

King v. Burwell, the case to be heard Wednesday, centers on the legality of insurance subsidies being provided in states that use the federal HealthCare.gov platform. Some congressional sponsors of the health-care law have said that they clearly intended to make subsidies available to individuals in all states, regardless of whether states used their own or the federal insurance exchange.

In op-eds and amicus briefs, several members of Congress have argued that an Internal Revenue Service rule proposed in August 2011 and finalized in May 2012 that extended subsidies to individuals in both state- and federally run insurance exchanges was consistent with their intent at the time the health-care law was passed. The Congressional Budget Office “came to the same conclusion,” five lawmakers wrote in the Washington Post last October. The legislators say that because CBO assumed that subsidies would be available in all 50 states, as expressed by CBO scores for the bill when it passed, Congress’s intent was clear. But on a different issue of interpretation, several of the law’s authors undermined that logic.

The issue that prompted the about-face involves the “family glitch” related to eligibility for insurance subsidies. If one parent is offered health insurance through an employer, the entire family does not qualify for subsidies to purchase coverage through the marketplace. In March 2010, the same week the health-care bill was signed into law, the Joint Committee on Taxation issued an analysis of the legislation that said, in part, that even though “family coverage costs more than 9.5 percent of income, the family does not qualify for a tax credit regardless of whether the employee purchases self-only coverage or does not purchase self-only coverage through the employer.”

The same August 2011 proposed rule that prompted King v. Burwell also included Treasury proposals to codify the “family glitch,” consistent with the March 2010 technical explanation provided by the Joint Committee on Taxation. Yet Reps. Sander Levin and Henry Waxman—who, respectively, chaired the House Ways and Means Committee and the House Energy and Commerce Committee when the ACA was passed—wrote to Treasury in December 2011 complaining about this interpretation of the statute. Their letter argued that the Treasury interpretation of the glitch was “simply incongruent” with congressional intent and a “wrong interpretation of the law.”

When it came to the exchange subsidies, the Congressional Budget Office undertook no textual analysis of the statutory provisions at dispute in King v. Burwell. But the Joint Tax Committee did. It released a contemporaneous analysis of the provisions at issue with respect to the “family glitch.” Although Mr. Levin and Mr. Waxman say CBO’s silence suggests a presumption that subsidies should be available in all 50 states, they disregarded the contemporaneous analysis by the Joint Committee on Taxation.

Now, the former House committee chairmen could have been unaware of the JCT analysis at the time the law was passed. They could wish to argue for the most generous subsidy regime possible, regardless of the law’s technical specifics. There may be some other policy or political explanation.

But this situation highlights the pitfalls of claims regarding a law’s intent. All types of retrospective analyses could turn into self-justifying ones—which may provide little use to courts attempting to discern what a statute actually means.

This post was originally published at the Wall Street Journal Think Tank blog.