Tag: individual mandate

Under Romney/ObamaCare, Even the Scapegoats Scapegoat

In a recent post on how RomneyCare is increasing health insurance costs in Massachusetts (by encouraging healthy residents to purchase coverage only when they need medical care) and how ObamaCare will do the same, I linked to a Boston Globe article where an insurance-company spokeswoman made this odd claim:

We believe…the gaming in the system…is adding as much as $300 million dollars to the health care system in Massachusetts.

It’s hard to know what she meant. Taken literally, this claim is obviously untrue.  The gamers aren’t adding revenue to “the system” – they’re withholding revenue.  Nor are they adding costs, in the sense of additional medical spending.  If anything, overall spending falls because the gamers are less often insured, and therefore consume less medical care.

She might have meant that the premiums the gamers aren’t paying (or the difference between what they pay and the medical care they receive) amounts to $300 million, and that the gamers are imposing that cost on non-gamers in the form of higher premiums. But that doesn’t hold water, either.  The gamers have zero power to impose costs on non-gamers; only the government has that power. All the gamers are doing is responding rationally to the incentives RomneyCare creates and avoiding — lawfully, I might add — a $300 million tax.

So if that was her meaning, this spokeswoman should have said:

RomneyCare is imposing a $300 million tax on insured Massachusetts residents by encouraging other residents to game the system.

Instead, she blamed consumers and argued for laws that make it harder for consumers to avoid RomneyCare’s private-insurer bailout individual mandate.

So now we’ve got President Obama, who signed a law requiring health insurers to pay for more stuff, blaming insurers for rising premiums.  We’ve got pro-RomneyCare politicians doing the same in Massachusetts.  And we’ve got health insurers, who support laws forcing consumers to buy their products, blaming consumers for the cost of those laws.

Remember how RomneyCare and ObamaCare were supposed to promote responsibility?

RomneyCare Unleashed Adverse Selection, As Will ObamaCare

The Massachusetts health care law that Gov. Mitt Romney signed in 2006, and the nearly identical federal law that President Obama signed this year, create perverse incentives that are causing health insurance costs to rise and could eventually cause health insurance markets to collapse. A report released yesterday by the Massachusetts Division of Insurance shows that process is well underway.

Massachusetts requires health insurance companies to sell to all applicants, and imposes price controls that require insurers to charge all applicants the same premium, regardless of their health status.  ObamaCare would do the same.

Those price controls have two principal effects on healthy people.  First, they increase the premiums that insurers charge healthy people (the additional premium goes to reduce premiums for sick people).  Second, they enable healthy people to wait until they are sick to purchase coverage.  Since insurers must take all applicants, and charge them the same premium, there is little or no downside to waiting until one gets sick to purchase coverage.

Those price controls also guarantee that when healthy people drop out of insurance pools, premiums rise for everyone who remains, which causes more healthy people to drop out, and do on.  Economists and actuaries call this an “adverse selection death spiral.”

The Boston Globe reports that the Massachusetts Division of Insurance found that in the wake of RomneyCare, many more healthy residents are purchasing coverage only when they need it:

The number of people who appear to be gaming the state’s health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the Massachusetts Division of Insurance.

The result is that insured residents of Massachusetts wind up paying more for health care…

The number of people engaging in this phenomenon — dumping their coverage within six months — jumped from 3,508 in 2006, when the law was passed, to 17,177 in 2008, the most recent year for which data are available.

In the hope of preventing this sort of gaming behavior, RomneyCare requires Massachusetts residents to purchase health insurance.  Yet that “individual mandate” appears not to be working, probably because the penalties for non-compliance are far less than the cost of the mandatory coverage.  Thus many residents decline to purchase health insurance, pay the penalty (or misrepresent their coverage status), and purchase health insurance only when they need medical care.

ObamaCare contains similar price controls and requires nearly all Americans to purchase health insurance by 2014.  Yet ObamaCare’s penalties for non-compliance are also far less than the cost of the required coverage for most people.

As goes Massachusetts, so goes the nation.

ObamaCare’s Unlimited-Coverage Mandates Will Increase Some Premiums by 7 Percent (or More)

Among the many ways ObamaCare will increase the cost of health insurance, it will require all Americans to purchase unlimited annual and lifetime coverage.  The latter requirement takes effect this September.  The former will require consumers with non-grandfathered health plans (i.e., about half of the market) to purchase coverage with an annual limit on claims of no less than $2 million by 2014, and unlimited annual coverage thereafter.

In interim final regulations and a “fact sheet” released this week, the Obama administration claims that the mandate to purchase unlimited annual coverage will increase the cost of employment-based and individually purchased coverage by an average of about 0.1 percent.  That average glosses over the fact that these mandates will have zero effect on consumers who already purchase the required coverage.  Consumers who are actually affected by the mandates will see larger premium increases.

For example, the regulations indicate that the phased-in mandate to purchase unlimited annual coverage will increase premiums for the 18 million Americans affected by a weighted average of 0.15-0.18 percent.  Even that weighted average hides the fact that this mandate will cause premiums to rise as much as 6.6 percent for 278,000 Americans.  This mandate will increase premiums by even more – and for more people – once it is fully implemented.  But the administration did not include an estimate of the premium impact beyond 2014.

The Obama administration also estimates that the mandate to purchase unlimited lifetime coverage, when spread across all insured workers, will increase premiums by about 0.5 percent.  Yet that requirement would not affect the 40 percent of insured workers who already purchase unlimited lifetime coverage.  When spread across the 93.6 million affected workers, the average premium increase rises to 0.8 percent.  The increase will be greater than that for the 26.5 million workers with lifetime coverage limits at or below $2 million, and greatest for the 1.5 million workers with limits at or below $1 million.  But the administration offers no estimates for these workers.

Spread across the entire individual market, the unlimited-lifetime-coverage mandate would increase premiums by an average of 0.75 percent, according to the administration.  But since the mandate won’t affect 11 percent of that market, the average impact on the 8.7 million people affected will also be 0.8 percent.  Again, the 300,000 consumers in that market with lifetime limits at or below $2 million will face larger premium increases.  And again, the administration provides no estimates specific to these consumers. Which is a shame, because – aside from the uninsured – it is these consumers on whom ObamaCare will place the greatest burdens.

All told, ObamaCare’s unlimited-coverage mandates will increase the premiums of affected consumers by an average of about 1 percent, and as much as 7 percent for some consumers.  Or maybe more: the administration acknowledges that a “paucity of data” about the impact of these mandates means that there is “tremendous,” “substantial,” and “considerable” uncertainty about the mandates’ costs.

Obamacare Is Unconstitutional

The very day President Obama signed the Patient Protection and Affordable Care Act, aka Obamacare, Virginia’s attorney general filed a lawsuit in federal court challenging the constitutionality of the health care overhaul. Virginia’s complaint alleges, in relevant part, that the PPACA’s requirement that every individual purchase health insurance or pay a fine – the “individual mandate” – is unconstitutional because Congress lacks the power to enact it.

The U.S. Government filed a motion to dismiss, claiming that Virginia lacked standing to bring this suit but also that the Commerce Clause, the Necessary and Proper Clause, and Congress’ taxing power all justify the individual mandate. Virginia responded, in relevant part, that the Commerce Clause does not grant Congress unbridled authority to regulate inactivity and force every man, woman, and child to enter the marketplace or face a civil penalty.

Cato, joined by the Competitive Enterprise Institute and Georgetown law professor (and Cato senior fellow) Randy Barnett, filed a “memorandum” – not called a “brief” because this is district (trial-level) court – supporting Virginia’s position and explaining that neither of the Government’s fallback positions legitimizes the individual mandate. We point out that the Necessary and Proper Clause is not an independent source of congressional power, but enables Congress to exercise its enumerated powers. Similarly, the taxing power does not authorize the individual mandate because the non-compliance penalty is a civil fine – and it would be unconstitutional even if it were a tax because it is neither apportioned (if a direct tax) nor uniform (if an excise tax). Moreover, Congress cannot use the taxing power as a backdoor means of regulating an activity unless such regulation is authorized elsewhere in the Constitution.

You can read our memorandum here.  The Government now has an opportunity to reply to the arguments raised by Virginia and those supporting its position (including us), and then the court will entertain oral arguments on the motion to dismiss.  We can expect a ruling this fall.

House GOP Announces First Vote to Repeal ObamaCare

House Republicans say they will force a vote to repeal ObamaCare’s individual mandate, which will subject nearly all Americans to fines and/or imprisonment if they do not purchase a government-designed health insurance plan.  They are soliciting public feedback on their America Speaking Out website, which explains:

We need to repeal and replace the health care law with common sense reforms that will actually lower health care costs and let Americans keep the plan they have and like. That’s why Republicans are offering a proposal to repeal the requirement forcing Americans to buy government-approved health insurance. Twenty states and the nation’s leading small business organization agree that this law is unconstitutional and that’s why they are suing to overturn it. The federal government shouldn’t be in the business of forcing you to buy health insurance and taxing you if you don’t.

I’d rather see the entire law repealed – including the price controls on health insurance, the trillions of dollars in health insurance subsidies, the CLASS Act, etc..  Why not do it all at once, just so you don’t miss anything important?

But this vote is unlikely to succeed, so I suppose there will be time for votes repealing the whole thing.

ObamaCare’s Price Controls Threaten HSAs

John Goodman is correct that ObamaCare’s individual mandate – and Kathleen Sebelius’s power to make the mandate more burdensome at whim – threaten the continued existence of health savings accounts (HSAs).  But ObamaCare’s price controls are no less a threat.

The new law requires insurers to charge enrollees of the same age the same average premium, regardless of health status.  That’s a price control, and it will cause premiums for healthy people to rise dramatically and thus lead to massive adverse selection.  Healthy people will gravitate to less-comprehensive insurance – in particular, HSA-compatible high-deductible plans – where the implicit tax is smaller.

As premiums for comprehensive plans spiral upward (ultimately causing comprehensive plans to disappear) and as ObamaCare proves more costly than projected, supporters will be desperate for new revenue.  They will call for the elimination of both HSAs and high-deductible health plans on the grounds that those products – not the price controls, mind you – are causing the market to unravel.

HSAs allow young and healthy consumers to avoid the raw deal that ObamaCare offers them. And that’s precisely why ObamaCare’s supporters will try to kill HSAs. We will end up repealing one or the other.

NYT: Attorneys General Advance “a Credible Theory for Eviscerating” ObamaCare

The New York Times‘ Kevin Sack reports on the legal challenge to ObamaCare’s individual mandate launched by 20 state attorneys general:

Some legal scholars, including some who normally lean to the left, believe the states have identified the law’s weak spot and devised a credible theory for eviscerating it…

Jonathan Turley, who teaches at George Washington University Law School, said that if forced to bet, he would predict that the courts would uphold the health care law. But Mr. Turley said that the federal government’s case was far from open-and-shut, and that he found the arguments against the mandate compelling.

“There are few cases in the history of the court system that have a more significant assertion of authority by the government,” said Mr. Turley, a civil libertarian who acknowledged being strange bedfellows with the conservative theorists behind the lawsuit. “This case, more than any other, may give the court sticker shock in terms of its impact on federalism.”

Supporters claim the individual mandate will pass muster with the Supreme Court because in the past the Court has declared that the U.S. Constitution’s interstate commerce clause authorizes Congress to regulate non-commercial activity that affects interstate commerce. Sack writes:

Lawyers for the government will contend that, because of the cost-shifting nature of health insurance, people who do not obtain coverage inevitably affect the pricing and availability of policies for everyone else. That, they will argue, is enough to satisfy the Supreme Court’s test.

But to [the attorneys’ general outside counsel David] Rivkin, the acceptance of that argument would herald an era without limits.

“Every decision you can make as a human being has an economic footprint — whether to procreate, whether to marry,” he said. “To say that is enough for your behavior to be regulated transforms the Commerce Clause into an infinitely capacious font of power, whose exercise is only restricted by the Bill of Rights.”

Sack’s article contains an inaccuracy.  He writes:

Congressional bill writers took steps to immunize the law against constitutional challenge…They labeled the penalty on those who do not obtain coverage an “excise tax,” because such taxes enjoy substantial constitutional protection.

In fact, the law uses the term “excise tax” several times, but never in reference to the penalty for violating the individual mandate.  It describes that penalty solely as a penalty.  (The law does refer to the penalty for violating the employer mandate as a tax, but not an excise tax.)

As my Cato colleague Randy Barnett explains, that means supporters cannot reasonably claim that the individual mandate’s penalty is a tax, because that’s not what Congress approved.  As Cato chairman Bob Levy explains, even if supporters do claim that penalty is a tax, it would be an unconstitutional tax, because it does not fit into any of the categories of taxes the Constitution authorizes Congress to impose.

The “substantial constitutional protections” afforded to excise taxes do not protect the individual mandate.