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  • What next for health reform ?

    Posted by Michael Kennedy on July 26th, 2014 (All posts by )

    It looks to me that the Supreme Court will have little justification for continuing the Obamacare program as it exists. The Halbig decision should kill it off. It is clear that the IRS subsidies to federal exchange subscribers are illegal.

    The only statement anyone has found in the legislative history that addresses this point comes from the Act’s lead author, who affirmed that Congress did intend to withhold tax credits in federal Exchanges. During a September 23, 2009, mark-up of his bill, which ultimately became the PPACA, Senate Finance Committee chairman Max Baucus (D-MT) refused to consider a Republican amendment regarding medical malpractice on the grounds it fell outside the Committee’s jurisdiction. Sen. John Ensign (R-NV) protested, asking how Baucus’ bill could do other things that lie outside the Committee’s jurisdiction, like direct states to create Exchanges. Baucus responded the bill creates tax credits, which are within its jurisdiction, and makes eligibility for those tax credits conditional on states creating Exchanges. Conditional necessarily means that Baucus intended to withhold tax credits in states that did not create their own Exchanges.

    I just don’t see how the Court can ignore that history. The political left has been on a rant about Congressional intent since the decision was announced.

    What do I think? As I’ve written before, I had literally hundreds of conversations with the people writing health care legislation in 2009 and 2010, including quite a few with Gruber. Like other journalists who were following the process closely, I never heard any of them suggest subsidies would not be available in states where officials decided not to operate their own marketplaces—a big deal that, surely, would have come up in conversation.
    It’s certainly true that plenty of people who wrote and implemented the law preferred states to be in charge of their own marketplaces—in part, the thinking went, because state officials would have a better feel for the idiosyncrasies of their insurance markets. It’s also true that, under the law, states that created their own marketplaces had access to some extra funds to carry out the task. But nobody made threats of withholding subsidies, which were much larger and essential for expanding coverage, as far as I know.

    As I show above that just isn’t true. Now what ?

    How can we “fix” healthcare reform? Avik Roy thinks the Supreme Court will ignore Halbig.

    Ezra Klein makes a relevant point. “By the time [the Supreme Court] even could rule on Halbig the law will have been in place for years. The Court simply isn’t going to rip insurance from tens of millions of people due to an uncharitable interpretation of congressional grammar.” Ezra unfairly derides the legal issues at play, and exaggerates the policy implications, but he asks the right political question.

    Also: But the bottom line is that if taxpayer-funded subsidies can’t flow through healthcare.gov—the federal exchange—nearly every state will set up its own exchange. And subsidies will flow through the federal exchange until John Roberts says they can’t. No death spiral is imminent. No collapse is forthcoming. Obamacare is going nowhere.

    That may be why an accelerated review is being considered.

    The losing lead litigator (of King vs Burwell) in the Fourth Circuit, Michael Carvin of Jones Day, can now petition the High Court to hear his expedited appeal, and we hope he pursues that option as quickly as possible.

    There doesn’t have to be an appellate conflict for four Justices to agree to hear a case, and in King v. Burwell Mr. Carvin can point to the policy benefits of a quick resolution. The subsidies will continue to flow as long as the litigation is ongoing, which means that tens of billions of dollars are being distributed illegally. Two other cases are also challenging this law-breaking, one in Oklahoma (the Tenth Circuit) and another in Indiana (the Seventh).

    The decision is likely to take until next year, even if accelerated. By that time, we may have a GOP Senate. What then ?

    The principle failure of Obamacare is the bloated mandates that increase cost. Pre-existing conditions can be dealt with by risk pools, as is done in most states. Catastrophic illness is dealt with in France by carving out specific diagnoses that will be covered 100% within a fee schedule. That could be done. I explain how this is done here.

    Some cases are eligible for exemption for co-payment. Serious medical conditions such as diabetes, cancer and AIDS are exempt. The exemption pertains only to the diagnosis and other conditions require co-payment. A cancer patient with appendicitis, for example, must pay the regular rate for the surgery. More complex services and hospital stays over 31 days are also exempt. The exempt class of patients, such as children, maternity and war pensioners are the third category.

    A modification with a fee schedule could apply to those conditions.

    What about the rest ? I propose that Obamacare be made optional. That deals with the resistance to repeal. Alternatives could be permitted in which catastrophic insurance for young people is allowed. This would, in an instant, fix the mandate problem. The original Heritage plan that is constantly and erroneous attributed by the left as the origin of Obamacare concerned catastrophic care only. Even the left admits this.

    his (Michael Moore) essay also repeats a pernicious lie: the idea that the Affordable Care Act is essentially a Republican plan based on a Heritage Foundation blueprint. This argument is very wrong. It is both unfair to the ACA and far too fair to American conservatives.

    The Heritage Plan is here. if you want to download it.

    What should reform look like ? First, get rid of all the mandates in state plans and Obamacare. Second, allow a national market for health insurance. Third, eliminate the requirement that doctors and hospitals keep the reimbursement rates from insurance companies secret. It is not a “trade secret” when patients have to pay. This will help to establish cash markets that can compete with various group plans. Some people like HMOs. Fine, let the HMO offer its product and require an open price structure. A lot of people will prefer a “one fits all” approach. Others may prefer to buy catastrophic insurance like they buy fire insurance and pay for services as they are needed.

    I would have recommended the Electronic Medical Record 20 years ago but its introduction, with another Federal mandate behind it, has been botched almost as badly as the Obamacare web sites.

    For the past 50 years, health insurance has evolved from insurance to prepaid care with none of the efficiencies that a membership-based HMO has. Claims processing is expensive. It is insane to process $50 claims in a system that requires $50 to process. Underwriting has vanished from health insurance with the mandates. The incredible costs of Obamacare suggest that a better system would allow real insurance and substitute a risk pool system for the high cost diseases. Maybe the collapse of Obamacare will allow some real reform.

    The sticky wicket may be the issue of taxation of employer plans. John McCain proposed a plan in 2008 that did that.

    The McCain health plan tackles the fundamental problem in the current system: the tax treatment of health insurance. Equalizing the tax treatment and financing of health care is the first step in realigning the incentives in the system to provide consumers with better quality care at lower cost.

    How did he propose to do that ?

    Equal tax treatment for health coverage. The Senator would replace the special tax breaks for employer-based health insurance with a univer­sal system of health care tax credits for the pur­chase of health insurance. These health care tax credits of $5,000 for a family and $2,500 for an individual would be indexed annually for infla­tion and would be available to Americans regard­less of income, employment, or tax liability. Even prominent critics concede that such a tax change is a principled and far-reaching proposal.[2] This change alone would lay the groundwork for unprecedented consumer choice and competi­tion in the health care sector.

    This was criticized as too expensive and lacking subsidies for the poor. Now that Obamacare’s costs are showing up, maybe another look will be allowed.

    Some critics claim that this transition from a tax exclusion to a tax credit-financing the credit by making health benefits taxable compensation like wages-would amount to a tax increase.[11] This is incorrect. In fact, the proposed taxation of health benefits is simply a mechanism for transitioning from one tax break (the exclusion) to another (the credit). Under almost any scenario, the credit is a far more equitable and transparent tax policy.

    We may get the chance to see if this would work better.

     

    10 Responses to “What next for health reform ?”

    1. Tom Holsinger Says:

      What is more interesting is that the 4th Circuit ruling in King v. Burwell says the IRS can change the law by its own interpetation/regulation. If the federal exchange subsidies in Obamacare are legal only because of an IRS ruling, they can be made illegal when the IRS changes its mind. All we need is a Republican President to do it. Which highlights what flaming nonsense King v. Burwell is.

    2. MikeK Says:

      There are two other cases moving up the line in other courts.

    3. Subotai Bahadur Says:

      Granting that if law, precedent, and logic holds; the Obamacare subsidy system collapses. However, I have to note that the Halbig case was heard by a 3 judge panel of the DC District Circuit Court of Appeals. And that it was appealed to the full court. And when the full court is taken into account; the majority were appointed by Obama on purely ideological grounds including the suspension of the filibuster by Harry Reid.

      The rule of law and the Constitution are honored in the breach more than the application anymore. No one can make an assumption that anything other than the will of the regime will come out of any court case. If it does, it is a surprise.

      If the full DC Circuit rules against Halbig, functionally it is dead. If somehow it gets to the Supreme Court, we have to remember that the Supreme Court already [thank you John Roberts] ruled that it was unconstitutional unless it was a tax. And despite the explicit declarations that it was not a tax, if he squinted right, it was. So therefore it was constitutional.

      The legal system is an awfully weak reed to lean on.

      We are well into Red Queen territory.

      Subotai Bahadur

    4. MikeK Says:

      “If the full DC Circuit rules against Halbig, functionally it is dead. ”

      Actually, it is the other decision that allows for accelerated review. Because he lost, that attorney can petition the USSC. The other case has to wait for the 8th Circuit, which as you say, was packed by Obama.

    5. Tom Holsinger Says:

      The 8th better come up with something less silly than the 4th if they want Obamacare to survive. The 4th’s King v. Burwell ruling only delays the end of Obamacare to the next GOP administration.

    6. TimL Says:

      If there is a Republican president in 2016, he can just invoke the Obama rule and delay Obamacare, in it’s entirety, until the year 7077. Then demand Congress pass “Health Care Reform”.

    7. Gringo Says:

      The political left has been on a rant about Congressional intent since the decision was announced.

      Not surprising, because according to many on the left, intentions trump consequences. As long as you had good intentions, bad consequences are of no importance.

    8. vxxc2014 Says:

      LOL.

      SCOTUS doesn’t interfere with Trillions. This is Fanny/Freddie from GO, they know what they want and have improved their craft – peculation and smashing the peasants in one stroke.

      Keep looking to Law. Darwin award awaits.

    9. VKA Says:

      So, I’m all for consumer choice and competition in the healthcare market as the Heritage Plan pushes for in theory.

      But in practice:

      1) How will hospitals and doctors actually compete? It is very difficult to measure quality, and there is also significant evidence that by publicly disclosing quality measures, you create perverse incentives that lead to bad outcomes all around. After all, any consumer can tell if a car is a good car pretty quickly. Very few people can tell if they care they’re getting is any good.

      2) How will the insurance plans compete? How can any buyer of insurance figure out which doctors and specialists are on which plans, and what their future health care needs might look like? The only ones I see doing so are the sickest who want to make sure their doctors are covered in the plan they buy.

      What can we do that would mitigate this, and allow real competition on things that consumers can understand and make rational decisions about?

    10. MikeK Says:

      “How will hospitals and doctors actually compete?”

      They do now but only with informed consumers. They do lots of advertising and the doctors who advertise are the ones who are not doing insurance paid for things. A look at the plastic surgery market might be interesting. Cancer centers advertise all over the place.

      The proliferation of urgent care centers is an indicator that doctors will respond to patients’ desires for convenience and expended hours. It’s going on all the time. The place it is not going on is the Medicaid market. Obamacare is Medicaid for all.

      We will have an even more marked two tier system if Obamacare continues.