Topic: Health Care & Welfare

Lindbeck’s Law: The Self-Destructive Nature of Expanding Government Benefits

Relevant foresight from Swedish economist Assar Lindbeck, “Hazardous Welfare State Dynamics,” American Economic Review, May 1995:

The basic dilemma of the welfare state …  is that the more generous the benefits, the greater will be not only the tax distortions but also, because of moral hazard and benefit cheating, the number of beneficiaries. This is a field where Say’s Law certainly holds in the long run: the supply of benefits creates its own demand… .

Serious benefit-dependency, or ‘learned helplessness’, may … emerge only in a long-run perspective. Possible examples of such gradual adjustments are an increased tendency to apply for social assistance, less job search and greater choosiness among unemployed workers, more absence from work for alleged health reasons, more applications for (subsidized) early retirement due to alleged inability to work, and more time and effort devoted to tax avoidance and tax evasion.

P.S. A 2007 empirical study by Friedrich Heinemann supported Linbeck’s hypothesis, finding that “transfer expansion or increasing unemployment tend to be associated with a larger readiness of the country’s population to cheat on benefits.”

‘There Is No Such Thing as an Individual Mandate. It’s a Tax.’

That’s what Department of Justice attorney Joel McElvain said in open court last week. And thus the Obama administration reversed itself once again on whether the individual mandate is a tax. 

Relatedly, a Clinton-appointed federal judge has dealt a second blow to the IRS and the credibility of its defenders. He called one of the administration’s arguments ‘silly,’ and promised expedited consideration of the Obamacare challenge, Halbig v. Sebelius. Read all about these in my latest Darwin’s Fool post at Forbes.com.

The Latest Obamacare Case on Appeal

Last year’s Supreme Court decision holding that Obamacare imposes a “tax” on people who don’t buy health insurance came as a surprise to most Americans. The law doesn’t call it a “tax,” but a “penalty,” and the law’s authors and supporters never called it a “tax” when it was enacted. But Chief Justice Roberts and the four liberal justices held that unlike the penalty in the 1922 case of Bailey v. Drexel Furniture – which was disguised as a tax – what the Patient Protection and Affordable Care Act imposed looked like a penalty but was really a tax.

One of the problems with that – left unaddressed in the NFIB v. Sebelius ruling – is that the Constitution requires “all bills for raising revenue” to “originate” in the House of Representatives. If the PPACA imposes a tax, then it fails this requirement because it originated in the Senate.

That’s the argument being made in the case of Matt Sissel, a veteran and small business owner represented by the Pacific Legal Foundation (including one of us, Sandefur). In a brief filed yesterday in the U.S. Court of Appeals for the D.C. Circuit, Sissel’s lawyers argue that the Obamacare “tax” originated in the Senate in violation of Constitutional standards.

There’s little case law interpreting the Constitution’s Origination Clause. The leading case is 1911’s Flint v. Stone Tracy Corp., which held that the Clause wasn’t violated when the Senate amended a House-passed bill to add a tax to it. The Court held that the Senate – which has the constitutional authority to “propose or concur with amendments” to House-passed revenue bills – was allowed to do this because that Senate amendment “was germane to the subject-matter of the bill.” It’s hard to see how the “germaneness” requirement was satisfied in the PPACA’s case, though. That law originated in the Senate, which took a House-passed bill on a completely different subject (providing incentives for veterans to buy their first homes), deleted its entire text, and replaced it with the bill that became Obamacare. This “shell bill” tactic is not uncommon in legislatures, but the Supreme Court has never held that it satisfies the origination requirement. A federal trial court threw Sissel’s case out in June, on the grounds that the Senate’s “amendment” satisfied the “germaneness” rule because the original House bill had something to do with taxes. But if the standard is that lax, the Origination Clause would mean nothing: the Senate could originate taxes at any time when they have some extremely broad similarity with some other bill the House has passed. In an age of boxcar-sized omnibus bills, that would be easy to do.

That trial court also said that the Origination Clause doesn’t apply to the Obamacare tax anyway, because, while it’s a tax, it isn’t a “bill for raising revenue.” There are precedents that have exempted certain kinds of taxes from the Origination Clause because they’re not revenue measures, but are instead earmarked for some specific fund, or are actually just enforcement penalties meant to ensure compliance with another law. But funds raised by the PPACA aren’t earmarked – they go into the general Treasury, to be spent as Congress chooses. And in NFIB, Chief Justice Roberts’s opinion specifically held that the provision at issue is not a penalty, but only a tax. It’s the reverse of Drexel Furniture.

These are reasons why the judge-made exceptions to the Origination Clause shouldn’t apply here. But there’s a broader reason why the courts should be reluctant to exempt Obamacare. In their decision last year, the majority of justices expressed a desire to preserve what they saw as democratic lawmaking. “We possess neither the expertise nor the prerogative to make policy judgments,” wrote Roberts. “Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them. It is not our job to protect the people from the consequences of their political choices.” Whatever you might think of this idea, if the courts are concerned about our democratic process, they should not hesitate to enforce a constitutional provision designed to preserve democratic accountability.

The Origination Clause was written to ensure that the power to tax – government’s most pervasive, dangerous, and easily abused power – was kept close to the people’s chamber: the House of Representatives, elected every two years directly by local districts. Had Obamacare been properly proposed in the House as a tax on not buying insurance in the first place, it wouldn’t have survived more than a few days – and as it stands the backlash against the law’s enactment swept out the House majority that supported that law. If the courts are concerned with empowering the will of the voters, that’s all the more reason that procedural requirements like the Origination Clause – that help ensure accountability and transparency, and keep the taxing power as close to the people as possible – are fully enforced.

Four Ways To Actually Defund ObamaCare

In a new blog post over at Forbes, I encourage opponents to save the knives for Obamacare and focus on four strategies for defunding the law:

  1. Stop Medicaid expansion in the states.
  2. Get states, employers, and citizens to challenge the IRS’s illegal ObamaCare taxes.
  3. Educate states about how to block the IRS’s illegal taxes legislatively.
  4. Urge House investigators to subpoena all materials related to the IRS’s illegal taxes.

Read the whole thing.

Another Obamacare Success Story: Turning a Future Lawyer into a Welfare Recipient

The Wall Street Journal’s James Taranto:

Brendan Mahoney, 3L, Medicaid recipient (LinkedIn.com)Meet Brendan Mahoney, the young man who is saving ObamaCare. He’s 30 years old, a third-year law student at the University of Connecticut. He’s actually been insured for the past three years–in 2011 and 2012 through a $2,400-a-year school-sponsored health plan, and this year through “a high-deductible, low-premium plan that cost about $39 a month through a UnitedHealthcare subsidiary.” But he wanted to see what ObamaCare had to offer.

He tried logging in to the exchange’s website at 8:45 a.m. yesterday…” He said the system could not verify his identity.” So he called the toll-free help line, whose operator also encountered computer trouble. “But then he logged on a second time, he said, and the system worked.”

“Once it got running, it was fast,” Mahoney tells the Courant. “It really made my day. It’s a lot like TurboTax.” He obtained insurance through ObamaCare. Now, he says, “if I get sick, I’ll definitely go to the doctor.” Even better, if he stays healthy, he won’t need to go to a doctor, and his premiums will support chronically ill policyholders on the wrong side of 40.

So, how much of a premium is strapping young Brendan Mahoney paying to help make ObamaCare work? Oops. The Courant reports that Mahoney “said that by filling out the application online, he discovered he was eligible for Medicaid. So, beginning next year, he won’t pay any premium at all.”

So the great success story of ObamaCare’s first day is the transformation of a future lawyer who was already paying for insurance into a welfare case.

Remember that the next time someone says that people on Medicaid have no other options. HT: Jack McHugh

Did Obamacare ‘Poster Boy’ Really Get Exchange Coverage?

Reason’s Peter Suderman: 

Chad Henderson is the media’s poster boy for Obamacare. Reporters struggled this week to find individuals who said they had been able to enroll in one of the law’s 36 federally run health-insurance exchanges.

That changed yesterday, when they found Henderson, a 21-year-old student and part-time child-care worker who lives in Georgia and says that he successfully enrolled himself and his father Bill in insurance plans via the online exchange administered at healthcare.gov.

But in an exclusive phone interview this morning with Reason, Chad father’s Bill contradicted virtually every major detail of the story the media can’t get enough of. What’s more, some of the details that Chad has released are also at odds with published rate schedules and how Obamacare officials say the enrollment system works.

Read the whole thing.

Obamacare Increases Man’s Premiums 300%, Supporters Call It a Success Story

Obamacare’s health insurance Exchanges opened for business, in most states, sort of, on Tuesday. Millions of people have reportedly flooded the Exchanges, but have had so much difficulty using the web sites that reporters have had a hard time finding anyone who has successfully enrolled in an Obamacare plan. The Washington Post’s Sarah Kliff writes:

Just moments after writing a blog post Thursday morning, about the lack of information on Obamacare enrollees, Enroll America reached out with contact information for Chad Henderson, a 21-year-old in Georgia who had successfully enrolled in coverage on the federal marketplace.

Chad is evidently a scarce commodity.

It was a little difficult to reach Henderson, mostly because so many other reporters wanted to talk to him. “I’m supposed to talk to the Chattanooga Times Free Press in a half hour,” Henderson said. “And The Wall Street Journal is supposed to call.”

Luckily, Henderson managed to squeeze me in for a few minutes.

Kliff reports that after a three-hour ordeal, Chad bought an Obamacare plan that cost him $175 per month – pretty steep, considering he makes less than $11,500 per year. His Obamacare premium comes to least 18 percent of his income. And no, Chad is not eligible for subsidies.

Compare that to what Chad could have paid if he bought one of the pre-Obamacare plans still available on eHealthInsurance.com until December 31. The cheapest such plan for someone meeting Chad’s profile is just $44.72 – as little as 5 percent of his annual income and about one-quarter of his Obamacare premium.

I can’t yet say whether Chad’s $175 premium is the lowest-cost plan available to him through the Exchange. (I’m in the process of researching that. Let’s just say it’ll probably take a few hours.) But it’s probably close. The cheapest plan available to him through eHealthInsurance.com after Obamacare’s community-rating price controls take effect in 2014, and drive up premiums for young, healthy people market-wide, is $190.23. That’s with the maximum cost-sharing allowed under Obamacare. So it appears Obamacare quadrupled Chad’s premiums, and Enroll America thinks that is a success story.

To me, the most interesting part is that Chad didn’t buy health insurance when it was available to him for just $45 per month, but did buy it at an unsubsidized $175/month premium. Why? Again, Kliff:

He describes himself as a supporter of President Obama who has anxiously awaited Obamacare’s rollout…

Part of his decision was ideological: He wants the health-care law to succeed.