Tag: insurance

Does HHS Have the Authority to Tax Health Premiums in Federal Exchanges?

Remember how an adviser to the federal Department of Health and Human Services said the department would have to “get creative” on funding federal health insurance exchanges, because states were refusing to create their own and ObamaCare provides no source of funding for federal exchanges? Well, HHS released its very creative response in a Friday news dump today, and the answer is “user fees” of 3.5 percent on all health insurance plans sold through federal exchanges.

But is that a little too creative? Does HHS have the authority to tax health premiums in its exchanges? Here’s what the department’s proposed regulation says:

Federally-facilitated Exchange user fees: Section 1311(d)(5)(A) of the Affordable Care Act contemplates an Exchange charging assessments or user fees to participating issuers to generate funding to support its operations. As the operator of a Federally-facilitated Exchange, HHS has the authority, under this section of the statute, to collect and spend such user fees. In addition, 31 U.S.C. 9701 provides for an agency to establish a charge for a service provided by the agency. Office of Management and Budget Circular A-25 Revised (“Circular A-25R”) establishes Federal policy regarding user fees and specifies that a user charge will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public. In this proposed rule, we establish a user fee for issuers participating in a Federally-facilitated Exchange.

I don’t know anything about 31 U.S.C. 9701 or Circular A-25R. But here’s the Section 1311(d)(5)(A) language upon which they rely:

NO FEDERAL FUNDS FOR CONTINUED OPERATIONS.—In establishing an Exchange under this section, the State shall ensure that such Exchange is self-sustaining beginning on January 1, 2015, including allowing the Exchange to charge assessments or user fees to participating health insurance issuers, or to otherwise generate funding, to support its operations.

A few thoughts:

  1. It is interesting that when the federal government wants to justify generating funds for their Exchanges’ operational expenses, they cite for authority a paragraph titled, “NO FEDERAL FUNDS FOR CONTINUED OPERATIONS.”
  2. The proposed regulation correctly notes that Section 1311(d)(5)(A) only “contemplates” state Exchanges charging assessments. It certainly doesn’t authorize states to make such assessments; states already have the authority to impose such levies. (They are states, after all.) Nor does it even direct states to levy user fees. It says, in essence, “You gotta fund this yourself. Here are a couple of methods. Knock yourselves out.” Since Section 1311(d)(5)(A) doesn’t give states the authority to levy such taxes, it’s hard to see how that paragraph translates into “HHS has the authority, under this section of the statute, to collect and spend such user fees” (emphasis added).
  3. Section 1311(d)(5)(A) speaks specifically of states. It makes no mention of the federal government. Lest anyone think its mention of “an Exchange” could refer to state or federal exchanges, I refer you four paragraphs up to Section 1311(d)(1), which imposes another “REQUIREMENT … An Exchange shall be a governmental agency or nonprofit entity that is established by a State.” Or is the federal government again claiming that it can establish an Exchange that is established by a state?

Again, I don’t know anything about 31 U.S.C. 9701 or Circular A-25R. But the fact that HHS also cited them makes me think they lack confidence in their claim that Section 1311(d)(5)(A) authorizes them to do this. And the fact that they listed them after their Section 1311(d)(5)(A) claim makes me wonder if they even weaker.

I’ll be looking into this. But I would be interested to hear from anyone with expertise in 31 U.S.C. 9701 or Circular A-25R.

Majority of Americans Now Oppose ‘Universal Coverage’

I launched the Anti-Universal Coverage Club on the Cato@Liberty blog in 2007. The Club is “a list of scholars and citizens who reject the idea that government should ensure that all individuals have health insurance.”

Well, that list just got longer. A whole lot longer. I’ll let the folks at Gallup take it from here:

In U.S., Majority Now Against Gov’t Healthcare Guarantee

For the first time in Gallup trends since 2000, a majority of Americans say it is not the federal government’s responsibility to make sure all Americans have healthcare coverage. Prior to 2009, a majority always felt the government should ensure healthcare coverage for all, though Americans’ views have become more divided in recent years…

The shift away from the view that the government should ensure healthcare coverage for all began shortly after President Barack Obama’s election and has continued the past several years during the discussions and ultimate passage of the Affordable Care Act in March 2010.

The split is 54-44 percent, well outside the poll’s margin of error. Below the jump are the results in chart form:

Now all we need is for 54 percent of the public to “like” the Anti-Universal Coverage Club’s Facebook page.

The shift was bipartisan:

Republicans, including Republican-leaning independents, are mostly responsible for the drop since 2007 in Americans’ support for government ensuring universal health coverage. In 2007, 38% of Republicans thought the government should do so; now, 12% do. Among Democrats and Democratic leaners there has been a much smaller drop, from 81% saying the government should make sure all Americans are covered in 2007 to 71% now.

Yet another indication that ObamaCare remains quite vulnerable.

‘By Far the Broadest and Potentially Most Damaging of the Legal Challenges’ to ObamaCare

That’s how Kaiser Health News describes the legal challenge that Jonathan Adler and I outline in this paper and that Oklahoma attorney general Scott Pruitt has filed in federal court:

Supporters of the law scoff at the arguments…

But, confident of their case, some health law opponents, including Jonathan Adler of Case Western Reserve Law School, Michael Cannon of the libertarian Cato Institute and National Affairs editor Yuval Levin, are urging Republican-led governments to refuse to set up the online insurance purchasing exchanges, which would, as the argument goes, make their residents ineligible for the tax credits and subsidies. They say that this step also would gut the so-called employer mandate, which the law says will take effect in states where residents are eligible for such assistance…

As even some health law supporters concede, the claim that Congress denied to the federal exchanges the power to distribute tax credits and subsidies seems correct as a literal reading of the most relevant provisions. Those are sections 1311, 1321, and 1401, which provide that people are eligible for tax credits and subsidies only if “enrolled … through an Exchange established by the state” [emphasis added].

It’s technically not correct to say that Oklahoma’s complaint is a challenge to ObamaCare, however. That complaint does not challenge a single jot or tittle of the statute. Oklahoma is asking a federal court to force the IRS to follow the statute, and to prevent the Obama administration from imposing taxes on Oklahoma residents whom Congress expressly exempted. Oklahoma’s complaint is indeed “the broadest and potentially most damaging of the legal challenges” related to ObamaCare. But think about it: if the only way to save ObamaCare from such a fate is to give the president extra-constitutional powers to tax and spend money without congressional authorization, just how unstable is this law? And is it really worth saving?

Also, the article is a few months behind on the debate over congressional intent, and our ongoing debate with Timothy Jost (who has reversed himself on quite a few issues).

But overall, a good article.

Michigan Joins Growing List of States Not Gullible Enough to Implement an ObamaCare Exchange

A key committee in the Michigan legislature has voted down a proposal to create one of ObamaCare’s health insurance “exchanges.” The Speaker of the Michigan House pronounced a state-run Exchange dead:

It was my hope the committee would find that a state-run exchange afforded us more control over the unacceptable over-reach by the federal government regarding the health care of Michigan citizens. After due diligence, however, it is clear that there were too many unanswered questions for the committee to feel comfortable with a state-run exchange and we will not have one in Michigan…

The committee apparently was not able to get the answers to key questions or receive assurances about major concerns regarding costs for Michigan taxpayers, the ability to adopt a model the federal government wouldn’t ultimately control or the ability to protect religious freedom for Michigan citizens. Because the committee could not be assured that a state exchange was the best way to protect Michigan’s citizens, it is understandable why they did not approve the bill.

Under the terms of ObamaCare, Michigan’s refusal to create an Exchange exempts all Michigan employers from the law’s employer mandate, which imposes penalties of up to $2,000 per worker per year.

It exempts, by my count, 429,000 Michigan residents from the law’s individual mandate – a tax of $2,085 on families of four earning as little as $24,000.

And it gives the state, those employers, and those individual residents standing to file lawsuits to stop the IRS from ignoring the clear language of the law and imposing those taxes on them anyway.

ObamaCare Implementation News

Here’s some ObamaCare implementation news from around the interwebs:

  • Minnesota Facing Bigger Bill For State’s Health Insurance Exchange”: Kaiser Health News reports Minnesota has increased its spending projections for operating the state’s ObamaCare Exchange by somewhere between 35-80 percent for 2015. Spending on the Exchange will rise by another 19 percent in the following year.
  • The Wall Street Journal  defends the 25-30 states that aren’t gullible enough to create an Exchange and therefore take the blame for ObamaCare’s higher-than-projected costs.
  • Arizona Gov. Jan Brewer (R) has announced she will not implement an Exchange. That creates another potential state-plaintiff, millions of potential employer-plaintiffs, and (by my count) 430,000 potential individual plaintiffs who could join Oklahoma attorney general Scott Pruitt in challenging the IRS’s illegal ObamaCare taxes. It also means that Arizona can start luring jobs away from tax-happy California. There are four Hostess bakeries in California that might be looking to relocate.
  • I’m enjoying a friendly debate with The New Republic’s Jonathan Cohn and University of Michigan law professor Samuel Bagenstos over whether the those taxes really do violate federal law and congressional intent (spoiler alert: they do). I owe Bagenstos a response.
  • PolitiFact Georgia rated false my claim that operating an ObamaCare Exchange would violate Georgia law. I explain here why it is indeed illegal for Georgia (and 13 other states) to implement an Exchange.
  • ThinkProgress.org reports, “Romney’s Transition Chief Is Encouraging States To Implement Obamacare.” A better headline would have been, “Government Contractor Encourages More Government Contracts.”
  • The Washington Examiner editorializes, “In California…state regulators have warned…insurance premiums will rise by as much as 25 percent once the exchange comes online…That’s the best-case scenario.” And, “In 2014, seven Democratic Senate seats will be up for grabs in states Mitt Romney carried (Alaska, Arkansas, Louisiana, Montana, North Carolina, South Dakota and West Virginia). Unless Obama’s HHS bureaucrats pull off an unprecedented miracle of central planning, Obamacare could well sink Democrats again in 2014, the same way it did in 2010.”

Why ‘Obamacare’s Critics Refuse to Give Up’

Jonathan Adler and I have a paper titled, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.” Our central claims are:

  1. The Patient Protection and Affordable Care Act explicitly restricts its “premium-assistance tax credits” (and thus the “cost-sharing subsidies” and employer- and individual-mandate penalties those tax credits trigger) to health insurance “exchanges” established by states;
  2. The IRS has no authority to offer those entitlements or impose those taxes in states that opt not to create Exchanges; and
  3. The IRS’s ongoing attempt to impose those taxes and issue those entitlements through Exchanges established by the federal government is contrary to congressional intent and the clear language of the Act.

Over at The New Republic’s blog The Plank, my friend Jonathan Cohn says this is “preposterous”:

No sentient being following the health care debate could argue, in good faith, that Obamacare’s architects intended for the federal government to set up exchanges without subsidies. It would completely subvert the law’s intent.

It appears my friend does not know the statute, the legislative history, or what Congress’ intent was.

Cohn writes that the statute is “a little fuzzy” on this issue. Quite the contrary: the statute is crystal clear. It explicitly and laboriously restricts tax credits to those who buy health insurance in Exchanges “established by the State under section 1311.” There is no parallel language – none whatsoever – granting eligibility through Exchanges established by the federal government (section 1321). The tax-credit eligibility rules are so tightly worded, they seem designed to prevent precisely what the IRS is trying to do.

ObamaCare supporters just know that can’t be right. It must have been an oversight. Congress could not have written the law that way. It doesn’t make any sense. Those provisions must take effect in federal Exchanges for the law to work. Why would Congress give states the power to blow the whole thing up??

The answer is that Congress didn’t have any choice. Congress intended for ObamaCare to work this way because this was the only way that ObamaCare could become law.

  • The Senate bill had to have state-run Exchanges in order to win the essential votes of moderate Democrats. Without state-run Exchanges, it would not have passed.
  • In order to have state-run Exchanges, the bill needed some way to encourage states to create them without “commandeering” the states. In early 2009, well before House and Senate Democrats introduced their bills, an influential law professor named Timothy Jost advised congressional Democrats of one way to get around the commandeering problem: “Congress could invite state participation…by offering tax subsidies for insurance only in states that complied with federal requirements…”. Both the Finance bill and the HELP bill made premium assistance conditional on state compliance. Senate Democrats settled on the Finance language, which passed without a vote to spare. (Emphasis added.)
  • The Finance Committee had even more reason to condition tax credits on state compliance: it doesn’t have direct jurisdiction over health insurance. Conditioning the tax credits on state compliance was the only way the Committee could even consider legislation directing states to establish Exchanges. Committee chairman Max Baucus admitted this during mark-up.
  • Then something funny happened. Massachusetts voters sent Republican Scott Brown to the Senate, partly due to his pledge to prevent any compromise between the House and Senate bills from passing the Senate. With no other options, House Democrats swallowed hard and passed Senate bill. (They made limited amendments through the reconciliation process. These amendments did not touch the tax-credit eligibility rules, and indeed strengthen the case against the IRS.)

A law limiting tax credits to state-created Exchanges, therefore, is exactly what Congress intended, because Congress had no other choice. On the day Scott Brown took office, any and all other approaches to Exchanges ceased to embody congressional intent. If Congress had intended for some other approach to become law, there would be no law. What made it all palatable was that it never occurred to ObamaCare supporters that states would refuse to comply. The New York Times reports, “Mr. Obama and lawmakers assumed that every state would set up its own exchange.”

Oops.

The only preposterous parts of this debate are the legal theories that the IRS and its defenders have offered to support the Obama administration’s unlawful attempt to create entitlements and impose taxes that Congress clearly and intentionally did not authorize. (But don’t take my word for it. Read the statute. Read our paper. Read this, and this. Watch this video and our debate with Jost. Click on our links to all the stuff the IRS and Treasury and Jost have written.) I wonder if Cohn would tolerate such lawlessness from a Republican administration.

Cohn further claims the many states that are refusing to create Exchanges are “totally sticking it to their own citizens” and people who encourage them “are essentially calling upon states to block their citizens from receiving federal tax breaks, worth as much as several thousand dollars per person. Aren’t conservatives and libertarians supposed to be the party that likes giving tax money back to the people?” Seriously?

  • Fourteen states have enacted statutes or constitutional amendments – often by referendum, often by huge margins – that prohibit state employees from directly or indirectly participating in an essential Exchange function: implementing employer or individual mandates. In those instances, the voters have spoken.
  • Only 22 percent of the budgetary impact of these credits and subsidies is actual tax reduction, and the employer- and individual-mandate penalties triggered by those tax “credits” wipe out most of that. The other 78 percent is new deficit spending. So what we’re really talking about here is $700 billion of new deficit spending.
  • When states refuse to establish Exchanges, they block that new spending, which reduces the deficit and the overall burden of government.
  • In addition, those states exempt their employers from the employer mandate (a tax of $2,000 per worker) and exempt millions of taxpayers from the individual mandate (a tax of $2,085 on families of four earning as little as $24,000).

Who’s for tax cuts now?

Here’s what I think is really bothering Cohn and other ObamaCare supporters. The purpose of those credits and subsidies is to shift the cost of ObamaCare’s community-rating price controls and individual mandate to taxpayers, so that consumers don’t notice them. When states prevent such cost-shifting, they’re not increasing the cost of ObamaCare – they’re revealing it.

And that’s what worries Cohn. If the full cost of ObamaCare appears in people’s health insurance premiums, people will rise up and demand that Congress get rid of it. Cohn isn’t worried about states “sticking it to their citizens.” He’s worried about states sticking it to ObamaCare.

The title of Cohn’s blog post is, “Obamacare’s Critics Refuse to Give Up.” At least we can agree on that much.