Topic: Health Care & Welfare

King v. Burwell Doesn’t Present a ‘Coercion’ Question

I have a post over at National Review Online’s Bench Memos blog that explains why, contrary to Supreme Court Justice Anthony Kennedy’s concerns, the King v. Burwell challengers’ interpretation of the Patient Protection and Affordable Care Act (a.k.a., PPACA, ACA, and ObamaCare) doesn’t coerce states. At least, not under the Court’s current tests for determining whether Congress is coercing states.

If you happen to be a busy Supreme Court justice, here’s a spoiler:

1. The ACA’s exchange provisions don’t penalize states. They let states make tradeoffs between taxes, jobs, and insurance coverage.

2. Roughly half of states appear to consider those costs tolerable. Prior to 2014, eight states voluntarily imposed this supposedly coercive penalty on themselves.

3. This “deal” is comparable to what the Court allowed in NFIB v. Sebelius. In NFIB, the Court allowed states collectively to turn down Medicaid subsidies for as many as 16 million poor people. The exchange provisions permit states to do the same for 16 million higher-income residents.

I have no objection to the Court lowering the bar for demonstrating that cooperative federalism programs coerce states. But the Court will have to lower the bar quite a bit to find the ACA’s exchange provisions coercive.

If you aren’t a busy Supreme Court justice, or even if you are, read the whole thing.

Furman’s Folly: Nostalgia about 1973 and Nonsense about the Bottom 90 Percent

Jason Furman, chairman of the Council of Economic Advisers, set out to explain “middle-class economics” in the Wall Street Journal, March 11, in an earlier Vox blog and in a presentation to National Association of Business Economists (NABE), as well as the first chapter of the Economic Report of The President

The intent is to make the recent economy look healthier (massaging 2.3-2.4 percent growth for 2013-14 into 2.7 percent), and to claim that “subpar” 2010-14 income gains for the middle class (generously defined as the bottom 90 percent) are not due to a subpar recovery but to something that has gone on ever since 1973.  His Wall Street Journal article complains of “the decades-long trend of slower income growth for the middle class.”

Furman says, “Congressional Budget Office data (with a minor extrapolation) show, median U.S. incomes are up 17 percent since 1973.”  Actually, CBO data start with 1979 and end with 2011, so it takes more than minor extrapolation to extend that back to 1973 or forward to 2013.  CBO estimates show real after-tax median income rising from $45,400 in 1983 to $68,000 in 2008 (in 2011 dollars), but not yet back to the 2008 level by 2011. Making up a number for 1973 can’t undo stagnation after 2008. 

He continues: “But from 1948-73, median incomes rose 110 percent, according to broadly comparable Census estimates.”  Yet the two series aren’t remotely comparable.  Unlike pre-tax “money income” from the Census Bureau, the CBO subtracts federal taxes (middle-income tax rates were nearly cut in half since 1981) and includes rapidly increased health and other in-kind benefits from employers and government (Medicaid, SNAP, CHIP and housing allowances). 

Australia Could Show a Way Forward on Welfare Reform

As previous Cato work has shown, our current welfare system fails us in a number of ways. It is both overly complex and inefficient: over 100 different programs spend roughly $1 trillion each year yet do relatively little to actually lift people out of poverty. In some cases, the overlapping programs can create “poverty traps” that make it harder for people to climb the economic ladder.

Despite many warnings about the welfare system’s underwhelming performance, reform remains elusive. While there are encouraging signs that some policymakers are taking the issue seriously, reform ideas have not yet gained significant traction or translated into concrete policy change.

Each year of inaction comes with a heavy price tag: another trillion dollars spent with very little to show for it. After the relatively successful welfare reform of 1996, the welfare system in the United States has largely been on autopilot. Annual spending continues to increase with few efforts to address or even identify the many problems still present.

In contrast, in Australia a new comprehensive review of its welfare system shows the country is earnestly grappling with this issue and seeking real solutions. Their efforts are an encouraging sign that broad, substantive welfare reform is still possible.

Last week, Australian Social Services Minister Scott Morrison released the final report from a group commissioned to provide an in-depth review of Australia’s welfare system. The authors identify many of the same problems found in the antipoverty programs in the United States. The ad hoc development of the dozens of programs that make up a “patchwork quilt” welfare system leads to “unintended complexities, inconsistencies and incoherencies” and “does not provide clear rewards for work.”

Too often, beneficiaries who can work do not, either because doing so would disqualify them from disability programs or because the welfare system creates perverse incentives where additional earnings actually leave them worse off. As more beneficiaries are relegated to the economic sidelines, their likelihood of long-term dependency increases, exacerbating the fiscal burden of the welfare system. Welfare expenditures already account for a significant portion of government spending in Australia, and will only increase in the future barring substantive change. Those realizations have lent a sense of urgency to reform efforts in Australia that hasn’t been seen in this country in the 21st century.

Actually, Justice Kennedy, IRS Did Tell Congress Section 36B Contains “Contradictory Language”

During oral arguments in King v. Burwell on Wednesday, Justice Anthony Kennedy expressed skepticism about the government’s claim that the Supreme Court should defer to the Internal Revenue Service’s interpretation of the Patient Protection and Affordable Care Act as allowing certain taxes and subsidies in all states, when the statute authorizes those measures only in states that have an “Exchange established by the State.” Specifically, Kennedy expressed skepticism that the IRS interpretation was eligible for so-called Chevron deference, telling Solicitor General Donald Verrilli:

And it seems to me a little odd that the director of Internal Revenue didn’t identify this problem if it’s ambiguous and advise Congress it was.

Actually, the IRS commissioner did tell Congress the statute was ambiguous.

IRS Commissioner Douglas Shulman

In August 2012, IRS commissioner Douglas Shulman testified before Congress. The hearing was largely devoted to the very IRS rule now before the Supreme Court. Rep. Scott DesJarlais (R-Tenn.) interrogated Shulman, in relevant part:

Dr. DESJARLAIS. Do you agree that when authorizing these premium assistance tax credits the Internal Revenue Code, Section 36B, explicitly refers to health insurance exchanges established by the States under Section 1311?

Mr. SHULMAN. I think 36B has some contradictory language in it.

[…]

Mr. SHULMAN. I very much agree with you that there is some contradictory language…

Dr. DESJARLAIS. You are not agreeing with me. I don’t think it is ambiguous, sir. I don’t think it is ambiguous. I think it is very clear.

This is notable for a few reasons:

First, the head of the IRS testified to Congress that there is in fact language in the act that contradicts the government’s argument before the Supreme Court in King v. Burwell that the statute unambiguously authorizes the disputed taxes and subsidies in states with federal exchanges.

Second, neither the IRS’s proposed rule nor its final rule claimed the statute was either clear or ambiguous on this question.

Third, the proposed and final rules identified no statutory support at all for the IRS’s interpretation.

Fourth, the IRS commissioner made this concession before the IRS rule had been challenged in court. The hearing was in August 2012 and the first challenge was filed in September 2012.

Fifth and consequent(ial)ly, this evidence further demonstrates the government’s arguments in King are post-hoc rationalizations for a rule promulgated without reasoned decisionmaking.

The Court’s Consequential Concerns: King v. Burwell

Among the countless analyses now going on of today’s 84 minutes of oral argument before the Supreme Court in King v. Burwell, perhaps none is more perceptive than that offered by SCOTUSblog’s Lyle Denniston, the dean of Supreme Court reporters. As many of us feared, however, it appears that the focus of several of the justices, perhaps a majority, was less on the law than on the “dire consequences” that would follow if the Court decided that the law was clear and that, accordingly, the government should lose. (See here for background on the case.)

Here’s Denniston:

From the time that the Supreme Court agreed in November to hear the challenge to subsidies on the thirty-four insurance exchanges set up by the federal government instead of by the states, the Obama administration and its supporters have talked darkly about the collapse of the entire ACA if that challenge succeeded. … The uncertain thing, as the hearing approached, was whether that message would get through to the nine members of the Court who would be the deciders.  If there was one dominant theme at the actual hearing, aside from how to read a complex federal statute, it was that a victory for the challengers would come at perhaps a serious loss—perhaps a constitutional loss, but at least a human and social loss in the end of the most ambitious (and audacious) health care plan ever enacted in America.

The point should not be missed. For “the Obama administration and its supporters,” the question was not whether the challengers should succeed on the law—but what will happen if they do. In a court of law, no less, the Obama team wants policy to trump law.

Denniston reports that it looks like the government has the Court’s more liberal members in its pocket, while Justices Scalia, Thomas, and Alito are likely with the challengers. Chief Justice Roberts said relatively little. That leaves Justice Kennedy, not surprisingly, who “sort of leaned toward the idea that the language of the ACA” was clear and thus the government should lose. “But in a broader sense,” Denniston continues, Kennedy was concerned with “a difficult constitutional question”: “that Congress should ordinarily not be allowed to coerce the states into doing something that Congress wants,” which arguably it did when it told the states to create exchanges or their citizens would be ineligible for federal tax credits for their health insurance, which would “send the insurance market into a death spiral.”

But what follows from that “difficult constitutional question,” sounding in federalism? Scalia put his finger on it, asking rhetorically, Denniston writes, “whether, if a correct reading of a law creates a constitutional problem, the Court has the authority to rewrite it.” In other words, is the Court simply one more legislative branch, to which the government turns when Congress has botched its job (“We need to pass the law to find out what’s in it,” the lady said.”)? Or is it a court of law, charged with saying what the law is, even when Congress has made a mess of things and should, by rights, face the music of the people for having done so? If consequences are indeed our concern, let’s focus on the most fundamental of them, starting with those that follow from abandoning the rule of law.

Obamacare’s Fate Turns on Whether Roberts and Kennedy Think State and Federal Exchanges Are the Same

It all depends on what the meaning of “by” is.

The four liberal justices clearly believe that an exchange established “for” or “in” a state by the federal government is the same as an exchange “established by the state,” to quote the relevant statute. Justices Scalia and Alito (and presumably the silent Thomas) equally firmly believe that words mean what they say.

So this case, as expected, turns on the views of Chief Justice Roberts and Justice Kennedy, who gave very little away at oral argument. If the government wins here, then not only will Obamacare continue to be rewritten by the IRS, but any executive agency – and any future president – will be able to rewrite any law. Accordingly, for the sake of the rule of law, I fervently hope that Roberts and Kennedy decide to enforce the Affordable Care Act as written and let Congress clean up its own mess.

Bottom 90% Pretax Pretransfer Income is no Proxy for Median After-Tax Income

bottom 90 percent vs CBO median

This graph illustrates a few points made in my recent Wall Street Journal article.  First of all, the Piketty & Saez mean average of bottom 90% incomes per tax unit is not a credible proxy for median household income, particularly since the big reductions in middle-class taxes from 1981 to 2003.

Second, the red bars claiming bottom 90% incomes in the past six years have been no higher than they were in 1980 (Sen. Warren) or even 1968 (see the graph) is literally unbelievable.  If that were true then all other income statistics – including GDP – would have to be completely false.