Does Medicaid Expand Inequality?

Believe it or not, an incredibly powerful article about health policy mentions the word “medical” once only in passing, and “health” not at all. On Thursday, Politico ran a feature article on the University of Michigan, and how it—and many other prominent public universities—face a “crisis of confidence.” In seeking to attract affluent, and frequently out-of-state, students, these institutions have shunned working-class families, many of whom no longer feel welcome, or try to apply.

The crisis of confidence stems largely from public universities’ financial strategies. That’s where health care comes in, in a big way. Medicaid’s constant, inexorable growth in state budgets has left less money for education of all types, not least higher education. As Medicaid spending has risen, state funding of public universities has declined, leading them to raise tuition and increase their percentage of out-of-state students to help balance the books. At the end of this fiscal game of “Musical Chairs,” many children from working-class families can’t find a proverbial seat at a top-tier institution.

Numbers Don’t Lie

A review of state budget expenditure reports puts the effects in stark relief. In fiscal year 1987, Michigan spent 9.7 percent of its state budget on Medicaid, and 8.5 percent on higher education. Nearly three decades later, in fiscal year 2015, Michigan spent a whopping 30.2 percent of its budget on Medicaid, and 4.3 percent on higher education. The state more than tripled the share of the budget devoted to Medicaid, while cutting the share of spending on higher education in half.

The national spending numbers tell a similar story. In fiscal year 1987, states spent an average of 9.8 percent of their budgets on Medicaid, and 11.1 percent on higher education. In fiscal year 2015, states spent an average of 28.2 percent on Medicaid, and 10.1 percent on higher education. Here again, higher education spending declined, even as Medicaid spending nearly tripled. While in 1987, states spent roughly half as much on Medicaid as they did on primary and secondary education, Medicaid has long since supplanted K-12 education as the top spending item in states’ budgets.

The Medicaid Payment and Access Commission (MACPAC) has a chart showing the way in which Medicaid spending has grown over time. Although their graphic doesn’t include it, one could easily insert two intersecting lines showing how the share of state spending on K-12 education and higher education has declined even as Medicaid spending has risen.

How This Affects Americans

In Michigan, universities have taken it on the chin more than in most states. Primary and secondary education comprise a relatively large percentage of the state’s budget, making the share of spending on post-secondary education (4.3 percent) less than half the national average. Politico explains the effect on the University of Michigan and its students:

In the late 1960s, the state covered 70 percent of instructional costs. By the late 1990s, state support covered less than 10 percent of instructional costs, which were largely unchanged when adjusted for inflation. The trend has persisted. One recent report found that, since 2002, state support for higher education in Michigan has declined 30 percent, when adjusted for inflation.

The university, like nearly every other state school in the nation, leaned on tuition to make up the difference. In-state tuition rose, but university leaders also focused on another, more lucrative, funding stream: out-of-state students, many of them elite students from wealthy families who couldn’t get into the Ivy League. Michigan was the next best thing.

“The university had no choice but to increase out-of-state enrollments of students paying essentially private tuition levels,” [former University of Michigan President James] Duderstadt said. Tuition rose to $14,826 a year for Michigan students; room and board adds about $12,000. In the 1970s, tuition was less than $600 per year. Out-of-state students, who now pay $47,476 per year, make up roughly half of the student body at Michigan, up from 30 percent in the late 1960s.

But as tuition rose, wages stagnated. The median family income in Michigan in 1984 was $50,546, in 2016 dollars. In 2016, it was $57,091. The working class was priced out.

A Poverty Trap?

The Congressional Budget Office (CBO) has indicated its belief that Medicaid itself discourages work. Specifically, CBO wrote that “expanded Medicaid eligibility under [Obamacare] will, on balance, reduce incentives to work.” Because an extra dollar of income could cause beneficiaries to lose access to Medicaid, costing them hundreds, even thousands, of dollars in insurance premiums and co-payments, some individuals will avoid work to keep their incomes below eligibility caps.

However, few have examined the way in which Medicaid can keep people in poverty not just from its direct effects (i.e., discouraging work), but by its indirect effects—the opportunity cost associated with state spending. Every dollar a state spends on Medicaid represents a dollar not spent on rescuing a student trapped in a failing school, or on scholarships for working-class families to attend top-tier universities.

This post was originally published in The Federalist.

Conservatives’ Choice: Power or Principle

In the days immediately preceding and following the November 8 election, I observed a distinct evolution in thinking among some rightist thinkers. Some went into the election pledging an outright rebellion in the Senate should a Majority Leader Chuck Schumer use the “nuclear option” to muscle through a Hillary Clinton Supreme Court nominee, but mere days later thought that a Majority Leader Mitch McConnell should consider abolishing the filibuster to allow President Trump’s nominee a smoother path to confirmation.

One couldn’t help but hold on to one’s neck for the bad case of whiplash. Some who proudly defended the filibuster as a bastion of deliberative legislating when they feared Democrats would win the White House and take back the Senate suddenly, instead, when presented with a Republican Senate and president-elect, considered this principle a trifling inconvenience. Those situational ethics present a more fundamental question: Are conservatives willing to forego policy “victories” that might result from a raw use of power, when exercising that power violates critical philosophical principles rooted in a belief in limited government?

Not Within the Law

The new president’s executive order on Obamacare, released Friday evening, instructed executive agencies to take actions “to the maximum extent permitted by law” to blunt the effects of Obamacare. There are indeed many ways the Trump administration can act within the scope of existing law to provide relief to consumers, many of which I outlined in a report last week. But blanket non-enforcement of the individual mandate doesn’t qualify as being within the law, any more than President Obama’s policy of blanket non-enforcement for certain classes of immigrants fit within statutory parameters.

Observers have noted the last administration’s many examples of executive overreach on Obamacare have given the new administration grounds to provide regulatory relief on multiple fronts. But two wrongs do not make a right. Take, for instance, the following analysis:

The Administration thus used the public pronouncements of its non-enforcement policies to encourage the regulated community to disregard provisions of [the law]. Prospectively licensing large groups of people to violate a congressional statute for policy reasons is inimical to the Take Care clause.

The quote comes from a paper by University of Michigan professor Nicholas Bagley, talking about President Obama’s 2013 “transitional policy” that allowed people facing cancellation notices to temporarily keep their pre-Obamacare plans. But the same description could apply to not enforcing the individual mandate as well. Conservatives believe that forcing individuals to purchase a product is unconstitutional—but so is an executive refusing to enforce the law. Is the answer to a constitutional violation really another constitutional violation?

Major Practical Concerns

In many cases, non-enforcement could result in lawsuits. The Obama administration’s unilateral actions generally led to more people getting benefits—insurance subsidies, immigration status, etc.—which made it difficult to find someone with standing to sue.

By contrast, if the Trump administration decides (as some have suggested) to give insurers permission to sell policies that do not meet all of Obamacare’s mandated benefits, purchasers of said policies would have grounds to sue insurers. Obamacare’s mandated benefits are prescribed in law, and if the law is clear, its text trumps (pardon the pun) any regulatory edict from the new administration. Most insurers probably wouldn’t even bother offering such policies because of the legal jeopardy and uncertainty they would face in doing so.

Making Repeal Less Likely?

There’s another practical implication of not enforcing the mandate that should worry conservatives: ironically, it could make Obamacare’s repeal more difficult.

Over the past few weeks Washington has debated whether Congress should repeal Obamacare without enacting a simultaneous replacement. Some pundits have been forthright in admitting that they wish to do so because they fear some members of Congress have a different vision of what an alternative regime should look like. To put it bluntly, they wish to hold repeal hostage to their vision for an Obamacare “replacement.”

The executive unilaterally ending some of Obamacare’s worst effects—albeit temporarily—will take the pressure off members of Congress to do so themselves. The justifiable fear is that action on repeal will get bogged down by internecine squabbling over a vision for “replace,” making the sole movement on Obamacare an executive action—which any future president (or even the current one) could overturn.

Reinforce Congress’ Role

If President Trump unilaterally eliminating the individual mandate isn’t the answer, then what is? For conservatives, the solution should lie with the branch the Constitution’s Framers considered the most important: Congress, the legislative branch Article I of the Constitution establishes. Through its oversight powers, Congress has the ability to investigate and act upon regulatory overreach.

The last Congress was less feckless in blunting unilateral executive actions than some might think. Its preliminary victory in the case of House v. Burwell, regarding Obamacare’s cost-sharing subsidies to insurers, set a critical precedent that Congress has the right to litigate on matters of constitutional import—namely, the executive (in this case, the Obama administration) spending funds without an express appropriation from Congress. Hopefully the Trump administration will vacate the Obama administration’s appeal of the District Court ruling, allowing this precedent to stand.

Obamacare Is Ultimately About Power

Obamacare was really never about health care so much as power—the power of government to regulate health care, tax health care, and force people to purchase health care (or at least health insurance). It seems somehow fitting that Obamacare gave the nation so many examples of executive unilateralism.

But to conservatives, the rule of law—in many ways the antithesis of raw power—stands pre-eminent. A Republican administration should not be tempted to “use unilateral actions to achieve conservative ends.” Such behavior represents a contradiction in terms. That’s why it’s important to watch the new administration’s actions closely in the coming days and weeks. Obamacare may not be worth keeping, but the rule of law is.

This post was originally published at The Federalist.

Explaining the Two Risk Corridor Bailouts

It never rains that it doesn’t pour. Even as nonpartisan experts at the Government Accountability Office concluded that the Obama administration broke the law with Obamacare’s reinsurance program, the Washington Post reported the administration could within weeks pay out a massive settlement to insurers through another Obamacare slush fund—this one, risk corridors.

The Post article quoted Republicans criticizing risk corridor “bailouts.” But in reality, the Obama administration itself has admitted using risk corridors as a bailout mechanism—trying to pay insurers to offset the costs of unilateral policy changes made to get President Obama out of a political jam. These two interlinked bailouts—one political, the other financial—explain this administration’s rush to pay off insurers on its way out the door.

Let’s Go Back to 2013

To fix the problem, the Centers for Medicare and Medicaid Services (CMS) tried a stopgap solution. Essentially, CMS said it would ignore the law’s requirements, and allow people to keep their prior coverage—albeit temporarily. States and insurers could allow individuals who purchased coverage after the law’s enactment, but before October 2013, to keep their plan for a few more months (later extended until December 2017). The final paragraph of CMS’ November 14, 2013 announcement of this policy included an important message:

Though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.

CMS offered insurers a quid pro quo: If you let Americans keep their existing plan a little longer—getting the administration out of the political controversy President Obama’s repeated falsehoods had caused—we’ll turn on the bailout taps on the back end to make you whole. You scratch my back…

I’ll Pay You Tax Dollars to Play

But this arrangement created several problems. First, CMS cannot decide that it just doesn’t feel like enforcing the law. In a paper analyzing the administration’s implementation of Obamacare, University of Michigan professor Nicholas Bagley called the non-enforcement of the law’s provisions “bald efforts to avoid unwanted consequences associated with full implementation of” the law. He argued the administration’s inaction abdicated the president’s constitutional obligation to “take care that the laws be faithfully executed:”

The Administration thus used the public pronouncements of its non-enforcement policies to encourage the regulated community to disregard provisions of [the law]. Prospectively licensing large groups of people to violate a congressional statute for policy reasons is inimical to the Take Care clause.

That law-breaking brought with it major financial implications. While healthy individuals kept their existing plans and stayed out of the Obamacare risk pool, sicker individuals signed up in droves. Because the Obama administration unilaterally—and unlawfully—changed the rules after the exchanges had opened, insurers found they had substantially under-priced their products. A 2014 House Oversight Committee report found major impacts after the administration announced the “like your plan” fix:

Insurers immediately started lobbying for additional risk corridor payments, meeting with and e-mailing Valerie Jarrett the day after the Administration’s announcement;

Insurers actually enrolled many fewer young people, and many more older people, than their original estimates made before the Exchanges opened for business on October 1, 2013—consistent with other contemporaneous news reports and industry analyses; and

‘One insurer told the Committee that it expects greater risk corridor receipts because of a sicker risk pool than it anticipated on October 1, 2013 due, in part, to the President’s transitional policy.’

All these developments are entirely consistent with CMS’ November 2013 bulletin announcing the arrangement. CMS pledged to use risk corridors to make insurers whole because it knew insurers would suffer losses as a result of the administration’s unilateral—and illegal—“like your plan” fix.

How About You Pay for Me to Break the Law

To sum up: The administration conjured a political bailout. It pledged not to enforce the law, so people could keep their plans, and President Obama could get off the hook for misleading the American people. This necessitated a financial bailout through risk corridors. Actuaries can debate how much of the unpaid risk corridor claims stem from this specific policy change, but there can be no doubt that the “like your plan” fix increased those claims. CMS itself admitted as much when announcing the policy.

Ironically, Bagley admits the first bailout, but denies the second. His paper concedes the “like your plan” violated the law, and the president’s constitutional duties, largely for political reasons. But he believes the administration can, and should, pay outstanding risk corridor claims using the Judgment Fund. All of this raises an interesting question: Why should the executive be allowed to break the law, abdicate its constitutional obligations, and then force Congress—and ultimately taxpayers—to pay the tab for the financial consequences of that lawbreaking?

The answer is simple: It shouldn’t. While insurers stand in the middle of this tug-of-war, they could have acted differently when President Obama announced his “like your plan” fix. They could have cancelled all pre-Obamacare plans regardless of the president’s announced policy, demanded the opportunity to adjust their premium rates in response, pulled off the exchanges altogether, taken legal action against the administration—or all of the above. They chose instead to complain behind closed doors, get their lobbying machine to work, and hope to cut yet another backroom deal to save their bacon.

But there are two political parties, and two branches of government. To say that Congress should have to write bailout checks to insurers as a result of the executive’s lawbreaking quite literally adds injury—to taxpayers, to the legislative power of the purse, and to the separation of powers—to insult. Any judges to whom the administration will try to bless a risk corridor settlement with insurers should ask many questions about the linked bailouts motivating this corrupt bargain.

This post was originally published at The Federalist.