Topic: Health Care & Welfare

The Economic Consequences of the ACA Notch

There is great interest in how the labor market will respond to the Affordable Care Act (ACA). Much of the popular discussion focuses on the implications of the newly-implemented and widely-anticipated employer mandate, which requires firms with 50 or more workers to provide health insurance for full-time employees (defined as workers with 30 or more hours per week). The employer mandate, unsurprisingly, creates strong incentives for companies to scale back employee hours (“29 hour work weeks”) and lay off workers or consolidate part-time jobs into full-time jobs in order to get under the 50 employee threshold.

There is comparatively less discussion of the incentives faced by workers. Although the Congressional Budget Office has provided estimates and discussion of the pertinent labor market effects, one issue that tends to get lost in all of this is how increasing a household’s income creates certain “notches” in a household’s budget constraint. By “notches”, economists mean very large changes in the subsidy (known as the “Premium Tax Credit”) received by a household for extremely small changes in income. These notches are well known in other transfer programs, particularly the “Medicaid notch” and the “public housing notch”. The ACA notch occurs in both states that expanded their Medicaid program, as well as those that didn’t.

To illustrate the sheer magnitude of the ACA notch, it is helpful to examine ACA subsidies for different individuals. First, consider a person who is expensive to insure – a 64-year-old – in a locality that generally has high insurance premiums. A good example is Clay County, Georgia (where Georgia also didn’t expand its Medicaid program). As the “Plan Preview and Price Estimator” from the federal government’s exchange shows, the premium tax credit goes up dramatically for this individual at an income of $11,671 and falls dramatically at an income of $46,679.

What Will Obama Do if He Loses King v. Burwell?

Rather than retread the ground Michael Cannon ably covered yesterday regarding President Obama’s healthcare speech – short version: we’re all in this together, so if you’re against Obamacare, you’re for letting people die in the streets – I want to look ahead to what our fearless leader will do if the government does indeed lose King v. Burwell.

We’ve famously been told that the Department of Health & Human Services has no Plan B. But what if the Supreme Court forces the executive branch’s hand? Yes, there’ll be plenty of finger-pointing and demagoguery as a high-stakes game of chicken unfolds among the White House, Congress, and various state governments. But what could Obama/HHS do? Remember, this is the president who has a pen and a phone, and “if Congress won’t act, I will.”

The running joke is that HHS/IRS will simply promulgate another rule deeming all federal exchanges to be state exchanges. But that couldn’t possibly be the answer, could it?

Actually, that’s an option, as described by Josh Blackman, co-author of Cato’s amicus brief in the case, in a new paper he wrote for the Federalist Society titled “The Legality of Executive Action after King v. Burwell.” Here’s the scenario:

HHS could determine that the fourteen states that declined to establish an exchange, but continued to perform certain regulatory activities that overlap with the ACA [what is known as “plan management”] have in effect established an exchange. As a result, consumers in these states could continue to receive subsidies. This approach would be inconsistent with the ACA, and disregard the choices the sovereign states made not to establish an exchange. If HHS issued such regulations—likely without notice and comment—it would amount to an end-run around an adverse ruling in King v. Burwell, and open the door to future litigation.

Obama’s King v. Burwell Speech Displayed the Very Ideological Fervor that Led Him to Break the Law

In a case called King v. Burwell, the Supreme Court will soon decide whether it agrees with two lower courts that President Obama is breaking the law by subjecting 57 million employers and individuals to illegal taxes, and spending the illegal proceeds to hide the cost of coverage from 6.5 million enrollees. Today the president delivered a speech designed to cow the Supreme Court Justices into turning a blind eye to the law. Instead, he offered what for some is the missing piece of the King v. Burwell puzzle. He displayed the very ideological fervor that leads powerful people to break the rules.

“We have an obligation to put ourselves in our neighbor’s shoes, and to see the common humanity in each other,” the president said. Yet the president of the United States has an even more important obligation to “take Care that the Laws be faithfully executed.”  It’s right there in Article II, Section 3 of the U.S. Constitution, which President Obama swore to uphold. King v. Burwell is about his failure to meet that obligation.  

More Bad News for ObamaCare: Enrollees See Little Benefit from Medicaid Expansion

As President Obama gears up to deliver a major address on the supposed successes of the Affordable Care Act, a study by one of the nation’s top health economists is pouring cold water on the ACA’s main engine for expanding health-insurance coverage: its expansion of Medicaid to cover able-bodied, childless adults.

MIT’s Amy Finkelstein has won a slew of awards, including the prestigious John Bates Clark Medal, for her work in health economics. In “The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment,” Finkelstein, Nathaniel Hendren, and Erzo Luttmer, used various econometric methods to quantify the benefits that enrollees receive from Medicaid. They drew from the Oregon Health Insurance Experiment, on which Finkelstein was a lead investigator.

The trio found that Medicaid enrollees receive very little benefit from each dollar spent on Medicaid. The absolute minimum enrollees receive is 15 cents of benefit per dollar spent. The authors’ best guess is that enrollees receive somewhere around 20-40 cents of benefit per dollar spent. The maximum is 90 cents–that is, no matter how the authors sliced the data, Medicaid’s costs exceed the benefits to enrollees. If the government just gave enrollees the money, Medicaid is such a bad deal that enrollees would not buy Medicaid coverage with it.

Medicaid spends, non-enrollees receive about 60 cents of benefit. The authors don’t identify who Medicaid’s real beneficiaries are, but they likely include those who receive Medicaid subsidies (hospitals, insurance companies, pharmaceutical companies, doctors, device manufacturers) and people who would otherwise make charitable contributions to provide medical care to enrollees. In other words, Medicaid’s actual beneficiaries are different from its intended beneficiaries.

That’s something to keep in mind when President Obama says, “There are outcomes we can calculate” like “the number of newly insured families” and that “those numbers add up to success.”

Wasting Billions on Disability Insurance

The federal Supplemental Security Income (SSI) program provides income to low-income, disabled individuals, including children. In 2014, SSI paid benefits totaling $56 billion to 8 million people. A new Government Accountability Office (GAO) report suggests that a substantial share of that money was spent improperly.

GAO reports that in 2014, SSI wasted $5.1 billion, or almost 10 percent of SSI spending, on improper payments. GAO says that much of the problem is due to SSI’s “management challenges that constrain its ability to ensure program integrity.” SSI is not conducting proper reviews of current beneficiaries in a number of ways.

First, SSI is failing to review files to ensure that beneficiaries continue to be eligible for benefits based on their health. When a person’s health improves, they are supposed to exit the program. According to GAO, SSI’s review backlog totaled 1.3 million files as of January 2014.  Eliminating this backlog would save SSI billions of dollars as ineligible persons would be removed from the program. For instance, children comprise 15 percent of SSI beneficiaries. In 2012 SSI had 435,000 children cases waiting to be reviewed. Many of those cases had been pending for review for six years. Seventy percent of those pending for six years involved cases where the child was projected to improve within three years. Likely, thousands of children received benefits for years past their eligibility due to SSI’s inability to conduct to reviews. GAO estimated that eliminating the backlog of reviews for children would save $1.3 billion over five years. Eliminating SSI’s entire backlog would save millions more.

King v. Burwell: Obama Pounds the Table to Distract Attention from His Lawbreaking

There is an old lawyers’ adage: “When the facts are on your side, argue the facts. When the law is on your side, argue the law. When neither are on your side, pound the table.” President Obama will deliver a speech today in which he pounds the table with the supposed successes of the Affordable Care Act. The address is part effort to influence the Supreme Court’s upcoming decision in King v. Burwell, part effort to spin a potential loss in that case.

The problem is, those supposed successes are not due to the ACA. They are the product, two federal courts have found, of billions of dollars of illegal taxes, borrowing, and spending imposed by the IRS at the behest of the president’s political appointees.

The president can pound the table all he wants about his theories of what Congress intended, or how, in his opinion, those illegal taxes have benefited America. No speech can change the fact that he signed into law a health care bill that makes it unmistakably clear that those taxes and subsidies are only available “through an Exchange established by the State.” If he didn’t like that part of the bill, he shouldn’t have signed it.

Senate Hearing on King v. Burwell This Thursday

At 2pm this Thursday, I will be testifying before the Senate Judiciary Committee’s Subcommittee on Oversight, Agency Action, Federal Rights and Federal Courts at a hearing investigating how the Internal Revenue Service developed the (illegal) “tax-credit rule” challenged in King v. Burwell. Witnesses include three Treasury and IRS officials involved in drafting the rule:

Panel I

The Honorable Mark Mazur
Assistant Secretary for Tax Policy
Department of the Treasury

Ms. Emily McMahon
Deputy Assistant Secretary for Tax Policy
Department of the Treasury

Ms. Cameron Arterton
Deputy Tax Legislative Counsel for Tax Policy
Department of the Treasury

The second panel will consist of Michael Carvin (lead attorney for the plaintiffs in King v. Burwell, who argued the case before the Supreme Court), University of Iowa tax-law professor Andy Grewal (who discovered three additional ways, beyond King, that the IRS expanded eligibility for tax credits beyond clear limits imposed by the ACA), and me.