Topic: Health Care & Welfare

John Roberts Rewrites Obamacare Yet Again

“If we give the phrase ‘the State that established the Exchange’ its most natural meaning, there would be no ‘qualified individuals’ on Federal Exchanges.” You’d think that I pulled that phrase from Justice Scalia’s dissenting opinion in today’s big Obamacare ruling—it makes clear that Congress said what it meant in the ACA, giving states the incentive to create exchanges by making their citizens eligible for tax credits if they do—but you’d be wrong.

It comes from the pen of Chief Justice Roberts, who admits, as he did three years ago in the individual-mandate case, that those challenging the administration are correct on the law. Nevertheless, again as he did before, Roberts contorts himself to eviscerate that “natural meaning” and rewrite Congress’s inartfully concocted scheme, this time such that “exchange established by the state” means “any old exchange.” Scalia rightly calls this novel interpretation “absurd.”

Of course, Roberts explains his transmogrification by finding it “implausible that Congress meant the Act to operate in this manner,” to deny subsidies to millions of people as part of legislation intended to expanded coverage. But it’s hardly implausible to think that legislation that still says that states “shall” set up exchanges—the drafters forgot to fix this bit after lawyers pointed out that Congress can’t command states to do anything—would effectively give states an offer nobody thought they’d refuse. It was supposed to be a win-win: states rather than the federal government would run health care exchanges (yay federalism!) and all those who need subsidies to afford Obamacare policies would get them (yay universal healthcare!).

The Court Today: At Once Deferential and Activist

A few additional broader thoughts on the Court’s King v. Burwell ruling today. First, technically, this is not an administrative law ruling. That is, the Court did not apply so-called Chevron deference and thereby uphold the IRS’s reading of the relevant Affordable Care Act’s provision. But practically, it comes to the same thing. In both cases, a provision that makes tax credits available to eligible individuals who buy insurance on exchanges “established by the State” is read to mean that those credits are also available to individuals who buy on exchanges established by the federal government.

Rather, this is a statutory ruling—as if the IRS had never interpreted that provision and the Court were doing so as a matter of first impression. And the tangled web the Court weaves in reading “established by the State” as meaning “established by the State or by the federal government” is reduced to shreds by Justice Scalia’s devastating dissent. It is a tour de force that must be read.

Toward the end of his dissent, however, Scalia waxes more broadly, on the proper roles of Congress and the Court. “Our task,” he writes, “is to apply the text, not to improve upon it.” “Rather than rewriting the law under the pretense of interpreting it, the Court should have left it to Congress to decide what to do about the Act’s limitation of tax credits to state Exchanges.” “The Court’s insistence on making a choice that should be made by Congress both aggrandizes judicial power and encourages congressional lassitude.” And he concludes this important section of his dissent with Hamilton in Federalist No. 78: “What a parody today’s decision makes of Hamilton’s assurances [that the Court has] ‘neither FORCE nor WILL but merely judgment.’”

With Chief Justice Roberts’s opinion for the Court, therefore, we have a perverse blend of the opposing positions of the judicial restraint and activist schools that reigned a few decades ago. To a fault, the Court today is deferential to the political branches, much as conservatives in the mold of Alexander Bickel and Robert Bork urged, against the activism of the Warren and Burger Courts. But its deference manifests itself in the liberal activism of a Justice Brennan, rewriting the law to save Congress from itself. As Scalia writes, “the Court forgets that ours is a government of laws and not of men.”

Supreme Court Validates Obama’s Power Grab

Today the Supreme Court allowed itself to be intimidated. Afraid that ObamaCare as written would throw the sickest patients out of their health plans a second time, the Court rewrote ObamaCare to save it—again. In doing so, the Court has sent a dangerous message to future administrations: If you are going to violate the law, make sure you go big.

The Court today validated President Obama’s massive power grab, allowing him to tax, borrow, and spend $700 billion that no Congress ever authorized. This establishes a precedent that could let any president modify, amend, or suspend any enacted law at his or her whim.

ObamaCare will continue to disrupt coverage for sick Americans until Congress repeals it and replaces it with reforms that make health care better, more affordable, and more secure. Despite today’s ruling, ObamaCare remains unpopular with the American public and the battle to set in place a health care system that works for all Americans is far from over.

Video: Teachers Victimized by IRS’s Illegal Taxes Call King v. Burwell a “Godsend”

Yesterday, I blogged about the 70 million Americans President Obama is subjecting to illegal taxes, who would be freed from those taxes by a ruling for the challengers in King v. Burwell. Many of the victims of those illegal taxes are teachers. Kevin Pace, for example, is a jazz musician and music professor in Northern Virginia who lost $8,000 of income in one year alone when the Obama administration unlawfully imposed ObamaCare’s employer mandate on his employer. 

A group called American Commitment has produced a short video telling the stories of two more victims of these illegal taxes. One says these illegal taxes reduced his hours worked by 40 percent, calling it “absurd” and “unfair.” Another says a ruling for the King v. Burwell challengers would be a “godsend” and asks Congress to “come to its senses and give me back my hours, please.”

State-by-State Data on the Number of Taxpayers King v. Burwell Would Free from Illegal Taxes

A ruling for the challengers in King v. Burwell would have benefits that swamp other effects of the ruling, including:

  • More than 67 million Americans would be freed from illegal taxes in the form of ObamaCare’s employer mandate.
  • More than 11 million Americans would be freed from an illegal tax averaging $1,200 (i.e., ObamaCare’s individual mandate).
  • Affected workers could receive a pay raise of around $900 per year.
  • The ruling could create an estimated 237,000 new jobs.
  • It could add an estimated 1.3 million workers added to the labor force.
  • It could result in more hours and higher incomes for 3.3 million part-time workers.

The number of people who could benefit from a ruling for the challengers is, therefore, more than ten times the number who would lose an illegal subsidy. And, as discussed here, the pool of people who need such subsidies may be as small as one-tenth the number receiving them.

Click here for state-by-state data on the number of employers and taxpayers who would benefit from King v. Burwell.

What’s Left at the Supreme Court?

After yesterday’s colorful opinion day – involving raisins, motels, and Spiderman – the Supreme Court announced that it would be handing down more rulings on Thursday and Friday, with Monday also currently indicated as a decision day. So what’s left to decide? (Not to be confused with “why are Court decisions moving left? – a remarkably premature assessment given the cases remaining, not to mention coding issues regarding liberal/conservative.)

The Obamacare Reporting Loophole

In many areas of the tax system, loopholes create horizontal inequity in that two nearly identical people pay very different taxes for trivial differences in behavior. Tax schemes for the financially sophisticated abound, such as paying mortgages early, converting 401k funds, and even dodging death taxes.

Obamacare provides a particularly egregious loophole for reporting income. It is a very lucrative yet an unintended scheme. Despite Sen. Orrin Hatch calling it a “fraudster’s dream come true” back in 2013, the loophole still exists today.

To illustrate the Obamacare reporting loophole, consider the health insurance marketplace in Hialeah, Florida with two consumers. The first, Michael, is single, age 49, a non-smoker, and makes $46,000. The second, Lisa, makes $47,000 but is otherwise similar. Both find themselves ineligible for a taxpayer subsidy on HealthCare.gov and in searching more than 80 plans decide on a Humana Bronze plan with an annual premium of $4,092.

Where’s the reporting loophole? If Michael reports that he expects to make just $12,000 during 2015, he’ll ultimately pay $1,250 for his health insurance. If Lisa does the same, she’ll be on the hook for full amount. The Obamacare reporting loophole lowers Michael’s payment by more than $2,800, even though he wasn’t eligible for a taxpayer subsidy at all.

How does Michael profit from this? Obamacare offers sizable taxpayer subsidies to those with low income. Even so, many would have difficulty paying more than $4,000 in advance for health insurance. Instead, consumers can report their anticipated income and then have the subsidy advanced directly to the insurance company. Advanced reporting of income runs into a practical issue: Michael or Lisa might make an inaccurate report. If so, the advance subsidy would be incorrect. One might expect that Michael or Lisa would have to square up during tax filing season, a process the IRS calls reconciling. For single individuals like Michael with income under $46,680 (400% of the poverty line), the way in which the advance subsidy is reconciled encourages misreporting. Michael faces a repayment limit of at most $1,250, if the taxpayer advance to the insurance company was too large. In contrast, there is no upper limit on repayment for Lisa, because her income is above 400% of the poverty line.

The graph below shows how Michael or Lisa profit purely from misreporting, as income changes in relation to the poverty line. In technical terms, if the unsubsidized cost of the second lowest-cost silver plan for an individual exceeds $370 per month in 2015, the Obamacare reporting loophole can lead to misreporting subsidies of nearly $3,000. Similar incentives exist for married couples, but with different thresholds and amounts.

What can be done about this loophole? Misreporting arises because repayments are capped. Those above 400% of the poverty line have no incentive to misreport because they would have to fully repay the advance. Aligning incentives to report with actual income by uncapping repayments, as is done for those over 400% of poverty, would remove this loophole. As consumers, financial advisors, and healthcare navigators learn about the Obamacare misreporting loophole, it will be tempting for many people to abuse it, ultimately harming taxpayers.