Tag: preemption

Ohio, Missouri Introduce the Health Care Freedom Act 2.0

Ohio Reps. Ron Young (R-Leroy Twp.) and Andy Thompson (R-Marietta), and Missouri Sen. John Lamping (R-St. Louis County), have introduced legislation—we call it the Health Care Freedom Act 2.0—that would suspend the licenses of insurance carriers who accept federal subsidies through one of the Patient Protection and Affordable Care Act’s (PPACA) health insurance Exchanges. At first glance, that might seem to conflict with or otherwise be preempted by the PPACA. Neither is the case. Instead, the HCFA 2.0 would require the IRS to implement the PPACA as Congress intended.

Here’s why. Under the PPACA, if an employer doesn’t purchase a government-prescribed level of health benefits, some of its workers may become eligible to purchase subsidized coverage through a health insurance “exchange.” When the IRS issues the subsidy to an insurance company on behalf of one of those workers, that payment triggers penalties against the employer. Firms with 100 employees could face penalties as high as $140,000.

Congress authorized those subsides, and therefore those penalties, only in states that establish a health insurance Exchange. If a state defers that task to the federal government, as 33 states including Missouri and Ohio have done, the PPACA clearly provides that there can be no subsidies and therefore no penalties against employers. The IRS has nevertheless announced it will implement those subsidies and penalties in the 33 states that have refused to establish Exchanges. Applying those measures in non-establishing states violates the clear language of the PPACA and congressional intent. See Jonathan H. Adler and Michael F. Cannon, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” Health Matrix: Journal of Law-Medicine 23 (2013): 119-195.

Whether legal or illegal, those penalties also violate the freedoms protected by the Health Care Freedom Amendment to Ohio’s Constitution, and Missouri’s original Health Care Freedom Act, which voters in each state ratified by overwhelming majorities. The Ohio (HB 91) and Missouri (SB 473) bills would protect employers and workers from those penalties, and thereby uphold the freedoms enshrined in Missouri statute and Ohio’s Constitution, by suspending the licenses of insurance carriers that accept those subsidies.

The question arises whether the PPACA would preempt such a law. It does not. The HCFA 2.0 neither conflicts with federal law, nor attempts to nullify federal law, nor is preempted by federal law.

The HCFA 2.0 concerns a field of law—insurance licensure—that has traditionally been a province of the states under their police powers. In preemption cases, courts “start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.” Wyeth v. Levine, 129 S. Ct. 1187, 1194-95 (2009). Courts then must determine whether the state law in question is nevertheless trumped by express or implied federal preemption.

Privacy Regulation and Political Economy

Good-hearted people want to cure hunger, ignorance, and other human deficits. Many see the cure in taking from the group of “haves” and giving to the “have-nots.” Along with the injustice of the transfer itself, libertarians like to point out the backward incentives that generous, systematic giving creates. Poverty and ignorance becomes a low-end, but survivable, mode of living. It’s not really a surprise that these problems respond to subsidy by becoming intractable.

That’s simple math to people who understand incentives, so it shouldn’t be hard to recognize incentive structures and their warping in other areas. Take federalism. The Constitution set out a design for government that aligned political incentives well. With a limited federal government and plenary powers left with the states, elected officials closer to the people would provide better government because they would be responsible to smaller numbers of people at the ballot box.

When state officials go wrong, good-hearted, economically-minded people want to cure their deficits. Many see the cure in removing power from the state level to the federal through preemption. State regulation can interfere with national markets, and there is a Commerce Clause that arguably permits national regulation of all things commercial.

But the Commerce Clause was not a grant of plenary authority over commerce anywhere in the United States. It gave Congress power to “regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” Think of a border sentry tasked mostly with preventing anyone from erecting gates.

One can “fix” bad state regulation by replacing it with a less-bad, nationally uniform rule. But doing so frees state officials from responsibility. The subsidy makes carelessness a low-end, but survivable mode of governing.

So with California Attorney General Kamala Harris brandishing $2,500 fines per download of apps in California if they don’t meet the terms of the California Online Privacy Protection Act, I don’t think the right answer is for the federal government to whisk in with its own less-bad privacy law that preempts California’s. The attorney general and the authors of California’s law should be allowed to let their behavior have its effects in their state, responding to their state’s voters if it has negative consequences.

The federal government’s only response should be to make clear that there are limits on California’s ability to bring out-of-staters into court. The federal government should preserve the right of people and businesses to exit states that make themselves unfriendly through high taxes, poor services, and inefficient regulation. This will set up the incentive structure under which governance in the United States will thrive, perhaps at the cost of California sinking into the ocean.

Immigration Laws at the Supreme Court: Constitutional but Bad Policy

For anyone suffering from post-Obamacare-argument Supreme Court withdrawal, this Wednesday the Court takes up Arizona’s controversial Senate Bill (“SB”) 1070.  See my blogpost from when the Court granted review for some background.

SB 1070 is much-misunderstood: it has nothing to do with sexy political issues like racial profiling and everything to do with boring legal ones like whether a given state provision is “preempted” by federal law.  That is, do the various parts of the state law – each one of which the Court will be evaluating independently – conflict with federal law (direct preemption) or intrude in an area exclusively reserved to Congress (implied preemption).

United States v. Arizona shows that there’s a difference between what’s constitutional and what’s good policy. SB 1070 was crafted to mirror federal law rather than asserting new state powers that interfere with federal authority over immigration.  That’s why lower courts only enjoined four of its provisions and why the Supreme Court would not be wrong to resurrect even those four.

But beyond this hyper-technical legal analysis, SB 1070 and copy-cat laws elsewhere – some of which go further than Arizona’s and thus are of more dubious constitutionality – highlight the dysfunction in our immigration system.  Given Congress’s failure to act in this area, state governments have spawned a host of federalism experiments.  Many of these laws are terrible policy for reasons ranging from economic effects to the misuse of law enforcement resources.

Legal scholars always enjoy the opportunity to point out laws that they think are constitutional but bad policy.  It makes them feel intellectually honesty (if they have reason to be defensive in that regard).  Well, immigration is the most obvious place where my constitutional and policy views diverge.  The ultimate solution here isn’t for the Supreme Court to strike down the states’ lawful if misguided legislation, but for Congress and the president to enact a comprehensive national reform.

For more on what’s at stake in the case, see my SCOTUSblog essay from last summer, my forthcoming law review article, and my new colleague Alex Nowrasteh’s recent op-ed.  For the briefs and other background materials, see SCOTUSblog’s case page.

Supreme Court Takes Up Arizona Immigration Law

The Supreme Court has agreed to review Arizona v. United States, the case regarding SB 1070, the Arizona law (only) four sections of which have been enjoined by the lower courts: requiring police to check the immigration status of anyone they have lawfully detained whom they have reasonable suspicion to believe may be in the country illegally; making it a state crime to violate federal alien registration laws; making it a state crime for illegal aliens to apply for work, solicit work in a public place, or work as an independent contractor; and permitting warrantless arrests where the police have probable cause to believe that a suspect has committed a crime that makes him subject to deportation.  For my previous analysis of SB 1070 and the legal challenges to it, see here, here, here, and here.

By taking up this case, the Supreme Court is wisely nipping in the bud the proliferation of state laws aimed at addressing our broken immigration system.  One way or another, states will know how far they can go in addressing issues relating to illegal immigrants, whether the concern is crime, employment opportunities (providing or restricting them), registration requirements, or even so-called sanctuary cities.

Of course, states wouldn’t be getting into this mess if the federal government – elected officials of both parties – hadn’t abdicated its responsibility to fix a system that serves nobody’s interests: not big business or small business, not the rich or the poor, not the most or least educated, not the economy or national security, and certainly not the average taxpayer.  For their part, SB 1070 and related laws in Alabama, Georgia, and elsewhere are (with small exception) constitutional – the state laws are merely mirroring federal law, not conflicting with it or otherwise intruding on federal authority over immigration – but bad public policy.  (For more on both these conclusions, read my SCOTUSblog essay from last summer.)

What this country needs is a comprehensive reform that obviates the sort of ineffectual half-measures the states are left with given Congress’s shameless refusal to act.  It’s not very often that Cato calls for the federal government to do something, but the immigration system is quite possibly the most screwed-up part of the federal government – which of itself is a significant statement coming from someone at Cato – and one that is so incredibly counterproductive to American liberty and prosperity.

The Court will hear Arizona v. United States in the spring.  For more immigration-reform developments, see this note in today’s Wall Street Journal and my blogpost on Utah’s plan, which the federal government has also since sued to enjoin.

SB 1070: Constitutional But Bad Policy

That’s the title of an essay I wrote for SCOTUSblog as part of their symposium on United States v. Arizona.  This is the big immigration case that will hit the Supreme Court’s doorstep later this month when Paul Clement, recently hired by Arizona, files his cert petition.

Here’s an excerpt:

…state governments, feeling tremendous pressure from their citizens to address the consequences of the federal failure to meet this nation’s immigration needs, are acting for themselves.  Arizona happens to be the “tip of the spear,” but we’ve also seen various other immigration-related laws passed in states as different as Utah, Georgia, and California.  Whether related to enforcement, expanded work permits, sanctuary cities, or other types of policy innovations, Congress’s abdication of its duty to manage our immigration system has spawned a host of federalism experiments.

And so we come to S.B. 1070 (as amended by H.B. 2162), which exemplifies the crucial distinction between law and policy that both liberals and conservatives tend to forget.  A law that is good policy might be unconstitutional or preempted by some higher law.  Here we see the converse: while S.B. 1070 is (with the exception of one provision) constitutional, it’s bad policy.

Read the whole thing.

What Immigration Reform Would Look Like

Utah’s done it (great editorial in the WSJ):

Passed by the state’s GOP legislature and signed by Republican Governor Gary Herbert in March, Utah’s plan is notable because it’s the first in the country that would allow undocumented immigrants to get a permit and work legally, after paying a fine of up to $2500 and meeting other conditions. The program is part of a larger package that includes increased scrutiny of immigrants who break the law. The compromise allows the state to address the economy’s demand for workers—thus reducing the incentive for illegal immigration—while satisfying voters who don’t want to reward those who arrived illegally.

Of course, states can’t just announce their own guest-worker programs – the federal government has plenary power over immigration – so Utah may need a waiver from the feds.  Which might not be forthcoming, given politically tone-deaf and legally dangerous statements like this:

In a Senate Judiciary hearing on Wednesday, Attorney General Eric Holder said the law, which combines enforcement measures with a guest worker program, needs to be adjusted or face federal lawsuits. Pressed on whether the Administration planned to sue Utah, Mr. Holder said the Department of Justice “will look at the law, and if it is not changed to our satisfaction by 2013, we will take the necessary steps.”

“To our satisfaction?”  What does Holder think an eventual federal immigration solution would look like?  Here’s Cato’s proposal, but anything that gets through Congress will have to expand employment opportunities for both skilled and unskilled immigrants, normalize the status of current illegals, and otherwise refocus resources on criminals and terrorists.

But it’s not just the government that’s up in arms about Utah’s sensible legislation:

Like Arizona, Utah is already fending off lawsuits from the left. On Tuesday, the American Civil Liberties Union and the National Immigration Law Center sued to stop the portion of the law similar to the one in Arizona that enlists state and local police in the effort to identify illegal immigrants. In Utah’s version, anyone who is arrested for a felony or serious misdemeanor has to show proof of citizenship.

Good grief!  State officials do not violate the Supremacy Clause – or engage in unconstitutional racial profiling – when they enforce federal law, which is what Utah’s enforcement measures, like most of Arizona’s, do.  Critics naturally maintain that such enforcement decisions should be left to the feds but that only gets it half right: the federal government, particularly its executive branch, has discretion over how to prioritize enforcement priorities, but those discretionary decisions (which, after all, can change from one administration to another and even within one presidency) cannot preempt state law.  Only federal law can do that.

This not a question of policy; while I generally like Utah’s plan, I’ve written before that Arizona’s (very different) SB 1070 is constitutional but mostly bad policy.  The larger issue is states wanting to do something in the face of federal abdication.  Some of Utah’s laws – the “plan” is actually five separate laws, covering the spectrum of immigration issues from expanding legal immigration (HB469, HB466) to addressing those already here for economic reasons (HB116) to addressing serious criminals (HB116, HB497) – may well end up losing in court, but they at least get national attention and to try to push federal action (SJR12).

As Rep. John Dougall, Vice Chair for Appropriations (#2 on the state budget), has explained to me, a major goal Utah had was to shift the dialogue from “enforcement only” to something more comprehensive, especially expanding legal immigration.  A more controversial purpose was to plant the federalism flag, arguing that states share some of the jurisdiction over immigration.  For example, Dougall wrote in an email to me that I quote with his permission, “HB469 rests on the belief that citizens should have the right to freely associate with anyone in the world, who don’t pose a public safety threat to others, and those citizens should be able to sponsor those immigrants in UT. A belief that the state should defend a citizen’s right to freely associate from an overly expansive federal government.”

I’m not fully convinced that some of this isn’t preempted – by federal law, not by what attorneys general or secretaries of homeland security say or do – but the goal is laudable and the classical liberal first principles are unassailable.  The Utah model could work for other states looking to split the Gordian knot between the extremists on both sides whose “debate” generates into ”amnesty” versus “racism.”  Texas Republicans have introduced similar legislation and other states’ lawmakers are also apparently interested.

That’s all to the good: even if you can’t enjoy the “greatest snow on earth” during the summer, anyone interested in innovative immigration reform should book a flight to Salt Lake City.

Supreme Court Rules That Arbitration Provisions Should Be Enforced

A few readers have now asked me about the “libertarian” reaction to yesterday’s Supreme Court ruling that allows companies to use boilerplate contract provisions that require consumers to arbitrate any disputes individually rather than coming together as a class action for arbitration purposes (let alone being able to bring claims into court).  That is, where an individual claim isn’t worth that much money (about $30 in yesterday’s case of AT&T Mobility v. Concepcion), no lawyer will take the case and so only by having a class file collectively, the argument goes, will justice be served.

The ruling broke down 5-4 on “conventional” lines, with an opinion by Justice Scalia, joined by the Chief Justice and Justices Kennedy, Thomas, and Alito, holding that the Federal Arbitration Act trumped (“preempted” by operation of the Constitution’s Supremacy Clause) California law that was more favorable to the plaintiffs.   Justice Thomas also filed a concurrence, noting that “state public policy against arbitration” is not enough to revoke a contract with an arbitration agreement.  Justice Breyer dissented, joined by Justices Ginsberg, Sotomayor, and Kagan, arguing that certain class action waivers are unenforceable.

Here’s some more background (edited from a useful summary I received in a Heritage Foundation email):  A cellular telephone contract between the parties provided for arbitration of all disputes, but did not permit classwide arbitration.  After the Concepcions were charged sales tax on the retail value of phones provided for free under their service contact, they sued AT&T, and their suit was consolidated with a class action alleging false advertising and fraud.  The district court denied AT&T’s motion to compel arbitration.  The Ninth Circuit affirmed, reasoning that the Federal Arbitration Act, which makes arbitration agreements valid and enforceable except on such grounds as exist to revoke any contract, did not require arbitration because the prohibition on classwide proceedings was “unconscionable” under California law.  The Supreme Court reversed, stating that arbitration agreements must be placed on equal footing with other contracts and California’s rule was preempted by the FAA and its strong federal policy favoring informal arbitration.

I’ll leave it to my colleagues Walter Olson, our expert on civil litigation, and Roger Pilon, who has written and spoken extensively on preemption, to comment on the particulars of the opinion if they wish.  What I will say generally is that (1) we at Cato take the enforceability of contracts quite seriously, but (2) preemption is a very technical area of law that has to be examined on a case-by-case, statutory-provision-by-statutory-provision basis. See, for example, this Cato Supreme Court Review article from a few years ago, and also the relevant section of last year’s “Looking Ahead” essay that presciently previewed the Concepcion case (kudos to Erik Jaffe!).  Finally, Roger will be writing an article piece on this term’s preemption cases for the next Review – but you’ll have to wait till Constitution Day in September for that!