Topic: Health Care & Welfare

Harvard Study of CBO Reports Says Nothing New or Interesting about King v. Burwell

Vox’s Sarah Kliff reports that Harvard University’s Theda Skocpol has produced a study purporting to show Congress intended for the Patient Protection and Affordable Care Act (PPACA) to authorize health-insurance subsidies through exchanges established by the federal government—even though the statute expressly and repeatedly says those subsidies are available only “through an Exchange established by the State.” Whether the PPACA authorizes those subsidies in the 36 states with federal exchanges is the question presented in King v. Burwell. The Supreme Court will hear oral arguments in King on March 4, with a ruling expected by June. Unfortunately for the administration and its supporters, Skocpol offers nothing either new or that supports the notion that Congress intended something other than what it expressly said in the statute.

What evidence does Skocpol claim to have found in support of her counter-textual interpretation of congressional intent? She combs through 68 analyses issued by the Congressional Budget Office during 2009 and 2010. She finds that in none of those reports did the CBO entertain the idea that the PPACA’s exchange subsidies might be available in some states but not others. She interprets this as both “excellent evidence” and “the best objective evidence we have that no one in Congress considered premium subsidies restricted to certain states to be either possible or desirable.”

Yeah, about that.

An alert Vox reader already informed Kliff that the claim that CBO never considered the possibility of exchange subsidies in some states but not others isn’t exactly true. The comprehensive health care bill approved by Democrats on the Senate’s Health, Education, Labor, and Pensions (HELP) Committee in 2009 (S. 1679) would have given states four years to establish exchanges themselves, after which point the federal government would establish an exchange. As my partner-in-crime-fighting Jonathan Adler and I write in an amicus brief filed with the Supreme Court in King:

S. 1679 asked each state to adopt certain health insurance regulations, and either establish an Exchange itself or ask the federal government to establish one “in” the state… S. 1679 withheld Exchange subsidies, as well as many of its insurance regulations, for up to four years until the state complied.

The CBO scored S. 1679 assuming that some states would establish exchanges early and some would not. Thus the agency’s cost projections assumed that exchange subsidies would be available in some states but not in others. So we’ve already got a problem with Skocpol’s analysis.

Obamacare’s Exchange Subsidies Are So Essential, People Are Turning Them Down

According to U.S. News & World Report

[B]rokers say they do hear from clients who are eligible for subsidies – which are based on household income and not assets – but want no part of them. Health officials have been boasting that 6.6 million people have enrolled in health coverage through state or federal marketplaces created under the Affordable Care Act, but in sharp contrast stands a small group of Americans who say they want nothing to do with the plans, even if they would save money. Their reasons vary: Some are protesting Obamacare, while others simply feel it’s unethical to accept taxpayer dollars to pay for health insurance…

For [Kansas City resident Grace] Brewer, buying a plan on her own would mean she would not have enough to pay for housing, she says, so she chose not to be insured this year and will have to pay a penalty in her 2016 tax filing that is likely to be 2 percent of her income. She has no dependents, is healthy, does not use prescriptions and says she has been careful about her health choices, not overusing medical care.

“I am frustrated. I am angry. And I say ‘no’ to the exchanges,” she says.

Some people are turning down the subsidies because they don’t need them:

Complicating the ethical question is that some people who qualify for subsidies based on their income could afford to pay their own way. “There is no question that we are enrolling people through these programs who would otherwise be considered middle-class or even affluent,” says Ed Haislmaier, a senior research fellow for health policy studies at the right-leaning Heritage Foundation think tank. “We are seeing people with enrollment in these programs that have significant assets, but for whatever reason – usually a temporary reason – fall below the income line.” 

Those reasons could range from early retirement to a midcareer job change. But whatever the case, some of those who are turning down subsidies are aware others are gaming the system, and they think it’s wrong.

“I won’t be a part of it,” Brewer says. “I don’t think it’s right. I don’t think it’s ethical, but the system has gotten so complicated that people can take advantage of those things.”…

The fact that the subsidies are causing controversy among the very people they’re intended to help is “evidence that the government doesn’t do charity very well,” says Michael Cannon, director of health policy studies at the libertarian Cato Institute think tank. 

“Prior to Obamacare, the federal government was subsidizing all sorts of people who did not need health insurance subsidies,” he adds, referring to services like the Children’s Health Insurance Program, Medicaid and Medicare, the government’s health program for seniors. “With Obamacare, we are subsidizing even more people who don’t need assistance.”

Something to keep in mind when contemplating the impact of King v. Burwell.

Nine TEN! Questions on the House Vote to Tweak ObamaCare’s Employer Mandate

Tomorrow, the Republican-controlled House of Representatives will vote on a measure that would alter the definition of full-time work, for purposes of the Patient Protection and Affordable Care Act’s employer mandate, from 30 hours per week to 40 hours per week. The measure is likely to pass. The House approved a similar measure last Congress, but it never went anywhere in the Senate, which was then under Democratic control. Now that Republicans have a majority in the Senate, there’s a chance the measure could clear both chambers of Congress. The president threatens a veto. Yuval Levin writes this change “seems likely to be worse than doing nothing.”

I have a few questions about this supposed threat to ObamaCare:

  1. This legislation would reduce the burden of ObamaCare’s employer mandatem but it would also increase government spending by making more workers eligible for health-insurance subsidies through ObamaCare’s Exchanges. How is that a policy victory?
  2. The legislation would therefore shift part of ObamaCare’s cost from an organized and influential interest group (employers) to a disorganized and less-influential interest group (taxpayers). How is that strategically smart?
  3. The legislation would make ObamaCare more tolerable for an organized and influential interest group (again, employers), thereby reducing their incentive to lobby for full repeal. How is that strategically smart?
  4. House Republicans say they are committed to repealing ObamaCare entirely. If so, why is this bill, rather than a full-repeal bill, the first item on their agenda? 
  5. House Republicans say this bill will show they can govern. But they also acknowledge the president will veto it. How is that governing?
  6. This legislation would merely lessen the burden of the employer mandate, and only for some employers. By June, however, the Supreme Court could completely invalidate employer-mandate penalties for all employers across 36 states. (See King v. Burwell.) How is this legislation a wise use of Congress’ time, when a Supreme Court ruling could go much farther in just a few months?
  7. A King ruling could also invalidate Exchange subsidies in 36 states, thereby exposing millions of Americans to the full cost of ObamaCare’s hidden taxes. That would give Congress more leverage than ever before to reopen and repeal the law. With this legislation, House Republicans are playing small ball with no leverage. How is that strategically smart?
  8. If enacted, this legislation would actually reduce the leverage a King ruling would give Congress to reopen and repeal ObamaCare. How is that strategically smart?
  9. The president has said he would veto this legislation. Given the above, should Republicans believe him?

Note that many of these questions also apply to repeal of the employer mandate before a King ruling, and sometimes after.

Update: I forgot a question. (Ten questions!)

10. This legislation would repeal a perverse incentive for employers to cut workers’ hours from just above to below 30 hours per week. It would replace that perverse incentive with a perverse incentive to cut the hours of other workers from just above to below 40 hours per week. Those other workers would complain that Republicans just made ObamaCare worse for them. How is that a political win, or strategically smart?

(Cross-posted at Darwin’s Fool.)

Is the Faculty of Harvard University Irrational?

As an irony junkie, this New York Times article on the outrage among Harvard’s faculty that they should face greater cost-sharing in their health benefits – and the incredulity of Harvard’s health economists at their colleagues’ reactions – is one of the most wonderful things I have read in the course of my career. And it reminded me of another Ivy League health economist: Princeton health economist Uwe Reinhardt.

It has long been one of Reinhardt’s hobby horses that “the American public’s idea of ‘common sense’ in health care” is fundamentally irrational:

To be responsive, then, to the “simple common sense” of the American people, any proposed health reform must not reduce the revenue of hospitals, lest some neighborhood hospital may have to close; or of doctors, lest some doctors might refuse to see patients; or of the manufacturers of health products, lest they are unable to innovate; or of anyone on the supply side of the health sector, lest they go out of business and have to lay off employees.

At the same time, the “simple common sense” of the American people dictates that any health reform that fails to bend down the growth curve of future health spending — the current jargon for controlling health spending better — is unacceptable, too.

At the time Reinhardt penned this particular expression of his exasperation (July 2009), I noted that the irrationality he decries is a direct result of policies he and other left-leaning health reformers have enacted into law:

The [explanation] is actually pretty simple: government has given us a health sector where everyone is spending someone else’s money.  In such an economy, individuals can make irrational demands (cut spending — but don’t reduce my access to care!) because they don’t bear the cost of their irrationality.

Emphasis added. People who pay for their own consumption don’t have the luxury of being able to pretend that tradeoffs don’t exist. Walk into a BMW dealership and announce, “I want a 7-series at Hyundai prices!”, and the dealer will laugh at you. When Medicare enrollees do the same thing – Keep Your Government Hands Off My Medicare! – the people who run Medicare praise and court them.

The seeds of such irrationality can also be seen in the case of Harvard University or any other employer-sponsored health plan, where the federal government imposes stiff tax penalties on anyone who does not (1) surrender $5,000 or $11,000 of their income to their employer and (2) let their employer use that money to select their health plan. Since this goverment policy means that workers don’t control that portion of their compensation, and don’t perceive the direct and negative relationship that employer-provided health insurance has on their wages (partly because they can’t get that money back by declining health benefits), workers end up demanding mutually incompatible things: comprehensive health-insurance coverage that doesn’t cost them anything. If that seems irrational, it is because, as I put it in that 2009 blog post, “Socialized Medicine Socializes the Cost of Irrationality, Too.”

Now that the Smartest People In The Universe – the faculty at Harvard University, naturally – are displaying the same behavior as the supposedly irrational American public, would Reinhardt still describe that behavior as irrational? Or is it Reinhardt and like-minded health economists who are irrational for expecting the lab mice to behave some other way? 

Food and Cancer—A Complicated Relationship

Cancer, we are told, lurks everywhere: popcorn, non-organic fruit, canned tomatoes, processed meats, farm-raised salmon, potato chips, foods (salted, pickled, and smoked), GMOs (of course), candy, artificial sweeteners, diet soda, alcohol, red meat; even white flour can kill you.

Enough already!

In fact, a recent study by researchers at the Johns Hopkins University School of Medicine contends that most occurrences of cancers are simply a result of bad luck. To wit, “Plain old bad luck plays a major role in determining who gets cancer and who does not, according to researchers who found that two-thirds of cancer incidence of various types can be blamed on random mutations and not heredity or risky habits like smoking.”

So, why do we obsess about what we eat and drink? Why do we see death lurking in every sip of coffee and every piece of bacon (the latter surely being the best proof yet that God truly loves us)?

Well, maybe it is due to evolution. For most of our existence on this blue dot hurtling through the universe, skepticism was perfectly warranted. Sometimes a delicious-looking berry was just a berry, and sometimes it made your stomach explode. (I exaggerate, but only a little.)

(As a side note, in some places skepticism about food and drink continues to be appropriate. Those who spend sleepless nights worrying about big, faceless corporations infusing us with poison may find it illuminating that in Zimbabwe it is generally safer to drink a can of Diet Coke than a glass of tap water.)  

Interestingly, obsession about the purity of food and drink seems to be much more prevalent among one sub-group of our species (and, according to MSNBC, the most highly evolved). I am, of course, talking about Homo Progressivensis.

New Study Finds More Evidence of Poverty Traps in the Welfare System

A new study from the Illinois Policy Institute analyzes the welfare benefits package available at different levels of earnings in that state. The authors find that low-income workers have limited economic incentive to increase their earnings from the minimum wage, and at some higher levels of earnings these workers actually see a reduction in net income. America’s complex welfare system can too often create these perverse situations where beneficiaries are financially worse off as they increase work effort and earned income. In these poverty traps, lost benefits and increased taxes outweigh any additional earnings, making it harder for beneficiaries to escape from poverty and reach the middle class

Author Erik Randolph finds that a single mother with two children who increases her hourly earnings from the Illinois minimum wage of $8.25 to $12 only sees her net income increase by less than $400. For many low-income workers striving to climb the ladder of prosperity, our welfare system takes away almost all of their incentive to move up from an entry-level job as they do not get to realize almost any of these gains. Even worse, someone in this scenario who works hard and increases her earnings all the way to $18 an hour, a wage level which would place her in the middle class, would actually see her net income decrease by more than $24,800 due to benefit reductions and tax increases. Instead of making it easier for beneficiaries to become independent and achieve a level of prosperity, the welfare system traps them into low levels of earnings. This parent would have to increase her earnings all the way to $38 an hour in order to replace the lost benefits and achieve the same standard of living.

These findings echo some of the insights from our Work versus Welfare Trade-off paper, in which we compared the benefits available to a similar family in each state to the equivalent wage that family would have to earn to obtain the same level of net income. Our study found that the high level of benefits available combined with benefit cliffs created situations that would deter work. In 34 states, the parent would have to earn well above the minimum wage to achieve the same standard of living she had when not working.

This new report from the Illinois Policy Institute illustrates some of the biggest problems with our current welfare system and corroborates many of the findings of our past work. Work versus Welfare looked at two situations, one where the parent worked and one where she had no earned income. This new study from the Illinois Policy Institute provides valuable additional insight, as it looks at this tradeoff at different levels of earned income to analyze the poverty traps in place as beneficiaries move to higher levels of earned income. Instead of encouraging work, the current welfare system often takes away much of the incentive for low-income workers to increase work effort and earnings. As Randolph puts it, “[r]ather than providing a hand up, Illinois’ welfare system can become a trap,” and this is unfortunately the case throughout the country. This study shows yet another reason why our welfare system needs fundamental reform.  

Cato will host a conference in New York January 29th to further explore poverty and the welfare system. The conference agenda and registration information can be found here

Obamacare and the Rule of Law

This spring, the Affordable Care Act will make its third trip to the Supreme Court. But King v. Burwell is different from its predecessors. Instead of challenging Obamacare’s constitutionality, or the way certain regulations burden particular types of plaintiffs, this lawsuit questions how the executive branch has enforced the law generally—or, more precisely, modified, delayed, and suspended it.

After supporting the challengers’ successful request that the Supreme Court take up this case, the Cato Institute has now joined with Professor Josh Blackman on an amicus brief that alerts the Court to the separation-of-powers and rule-of-law violations attending the ACA’s implementation. Through a series of memoranda, regulations, and even blog posts, President Obama has disregarded statutory text, ignored legislative history, and remade the law in his own image.

King focuses on tax credits—the subsidies that allow people to pay increased premiums—one of the key pillars of Obamacare that the administration has toppled. To assist those who lack employer-sponsored insurance, and because it couldn’t command states to establish exchanges, Congress authorized these credits for residents of states that do create the exchanges. The statute expresses this design in language that is clear as day: Individuals receive tax credits if they bought a qualifying health plan “through an Exchange established by the State.”

In other words, if a state failed to establish an exchange, its residents—who would end up buying plans through the federal HealthCare.gov—would not be eligible for the subsidies. (The ACA’s Medicaid expansion plan operated with a similar carrot-and-stick approach until the Supreme Court rewrote it.)

But a funny thing happened on the way to utopia: only 14 states set up exchanges, meaning that the text of the law denied subsidies in nearly three-quarters of states. This result was untenable to an administration intent on pain-free implementation. To obviate the uncomfortable compromises Congress reached, the executive engaged in its own lawmaking process, issuing a regulation that nullifies the relevant ACA provision.