Health Care Hardball: Why Democrats in Washington and around the country are praying that GOP governors create a state run health care exchange. GOP governors should just say no.

I have been reading this Cato Institute legal research paper by Michael Cannon and it’s making me realize that the GOP governors could really make Obamacare a political liablity for the Democrats by refusing to set up a state run health exchange.  It is a fascinating read and I highly recommend it.  In summary, it looks like the Obama Adminstration ultimately is going to have to count on a second John Roberts rescue.  Here’s why.  First, from Philip Klein:

With the election over and Obama reelected, repealing the law is not going to happen over the next four years. So 30 Republican governors will have to make a decision about whether they want to help the federal government implement Obamacare, or keep the onus on the Obama administration.

One of the silver linings of the Supreme Court decision is that it gave states the ability to opt out of the Medicaid expansion. Medicaid is one of the programs that is crushing state budgets and if implemented as intended, Obamacare will add 18 million beneficiaries to the program’s rolls. Though the federal government lures states with a honey pot in the short term – covering all of the expansion through 2016, by 2020 the states will be asked to kick in 10 percent of the cost, amounting to billions of dollars of spending imposed on states nationwide each year. It would be to the long-term benefit of governors to opt of the expansion.

Separately, the health care law was designed to coerce governors into embracing exchanges on which individuals will be provided with federal subsidies to purchase insurance. If a state doesn’t establish its own exchange, the law specifies that the federal government will step in and set one up for them. Given that Republicans typically favor more state and local control, there’s a clear temptation for them to cave in, assuming that the lesser of two evils by implementing the exchanges themselves. But they should resist that temptation….

Given that governors will have no real control over the exchanges anyway, they may as well let Obama administration officials sleep in the bed they made for themselves. It’s highly doubtful that the same administration responsible for implementing the failed economic stimulus package will be able to competently operate dozens of exchanges. Republican governors should allow the feds to live with the mess they created rather than clean up for them.

Another reason Republican governors should hold off on setting up exchanges is that there’s still a pending lawsuit that could drastically affect their implementation decision. Obamacare penalizes businesses up to $2,000 per employee if they don’t provide insurance and one of their employees obtains subsidies to purchase insurance on an exchange. Yet as Cato Institute health policy scholar Michael Cannon and Jonathan Adler of Case Western Reserve University School of Law outlined this past July, the way Obamacare was drafted, the subsidies for individuals to purchase insurance apply to state-based insurance exchanges, rather than ones created at the federal level. In September, Oklahoma Attorney General Scott Pruitt filed a complaint in court arguing that businesses should not be subject to the penalty if it’s a federal exchange for which subsidies shouldn’t be available (NICE!). Cannon argued to me that if this case is successful, it would force Congress to reopen Obamacare. For instance, he explained, if Illinois sets up an exchange and Missouri does not, a favorable ruling in this law suit would mean that Missouri businesses would be exempted from taxes that would be imposed on businesses in Illinois. Thus, even Democratic governors would want to see changes in the law.

Ouch.  So imagine this, states who set up their own state run health care exchanges could face a stampede of businesses who uproot and move to states who didn’t set up a state health care exchange because they wouldn’t have to pay a penalty in those states.  Imagine the Democratic governors in those states whom created the exchange grovelling to companies moving elsewhere to stay because the impact on tax revenue would be devastating.  Obamacare has created an unfair economic competitive advantage between states.  This is what happens when you rush to ram legislation, not having enough to time to think through and avoiding gaping flaws like this that causes the house of cards legislation Obamacare is to collapse. Democrats were having such difficulty getting the votes to pass this thing that if they allowed their congressmen to go home for recess to face angry constituents a second time, the law would have never passed.  The brazen folly of this bill is becoming more pronounced by the day and still the public clearly doesn’t want it.

One other thing, the IRS created a rule that in essence, amends the legislation (which is actually under Congress’s jurisdiction, not theirs.  The IRS doesn’t write or amend legislation, Congress does)  by trying to close out this flaw by claiming that the law provided for tax credits and subsidies for federally funded exchanges.  The argument the IRS gave was laughable and wouldn’t have a snowball’s chance in court under any discerning judge’s eye.  From the Cato Institute paper:

After the rule was proposed, commentators and several members of Congress raised concerns about the IRS’ apparent lack of statutory authority. In response, IRS officials and representatives of both the Treasury and HHS Departments insisted such authority was in the Act, yet cited no specific provisions to that effect. A Treasury Department spokeswoman said the Department is “confident that providing tax credits to all eligible Americans, no matter where they live and whether their state runs the exchange, is consistent with the intent of the law and our ability to interpret and implement it.”  On November 3, 2011, two dozen members of the House of Representatives wrote IRS commissioner Douglas H. Shulman that the proposed rule “contradicts the explicit statutory language describing individuals’ eligibility for receipt of these tax credits.” On November 29, Shulman responded:

“The statute includes language that indicates that individuals are eligible for tax credits whether they are enrolled through a State-based Exchange or a Federally-facilitated Exchange. Additionally, neither the Congressional Budget Office score nor the Joint Committee on Taxation technical explanation of the Affordable Care Act discusses excluding those enrolled through a Federally-facilitated Exchange.”  (Though they don’t cite any legal provision)  Also on November 29, the Department of Health and Human Services offered a similar defense:  ” The proposed regulations…are clear on this point and supported by the statute.  Individuals enrolled in coverage through either a State-based Exchange or a Federally facilitated  Exchange may be eligible for tax credits…Additionally, neither the Congressional Budget Office score nor the Joint Committee on Taxation technical explanation discussed limiting the credit to those enrolled through a State-based Exchange.”

Neither statement identified any specific statutory provisions in support of the IRS’ authority to issue this rule or provide tax credits for non-state-established exchanges. Despite the public concerns about its lack of authority to levy taxes or offer tax credits beyond those expressly authorized by Congress, the IRS stayed the course. Late in the afternoon on Friday, May 18, 2012,86 the IRS issued a final rule adopting its proposal without significant change:

In defense of its rule, the IRS claimed that its authorization of tax credits and premium assistance was supported by legislative intent, if not the actual language of the PPACA. Specifically, the final IRS rule provided the following justification:

“Under the proposed regulations, the term Exchange has the same meaning as in 45 CFR 155.20, which provides that the term Exchange refers to a State Exchange, regional Exchange, subsidiary Exchange, and Federally-facilitated Exchange.” (Err, the IRS is really grasping for air here)  Commentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges. The statutory language of section 36B and other provisions of the Affordable Care Act support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.”

Nowhere did the IRS claim that the language of section 36B makes tax credits available in federal Exchanges established under Section 1321, nor that the PPACA authorizes the IRS to extend tax credits to federal Exchanges, nor did the IRS claim that its interpretation is compelled by the text of the PPACA. Rather, the IRS claimed that various unidentified provisions of the law “support” its interpretation, that its rule is “consistent with” the Act, and that the “relevant legislative history” does not show otherwise.

Obama Administration:  Help us Obi-Wan John Roberts, figure out a way to make this pass Constitutional muster.  You’re our only hope.

But wait, there’s more!  From the National Review:

States also have to decide whether to implement the law’s massive expansion of Medicaid. The correct answer to both questions remains a resounding no.

State-created exchanges mean higher taxes, fewer jobs, and less protection of religious freedom. States are better off defaulting to a federal exchange. The Medicaid expansion is likewise too costly and risky a proposition. Republican Governors Association chairman Bob McDonnell (R.,Va.) agrees, and has announced that Virginia will implement neither provision.

There are many arguments against creating exchanges.

First, states are under no obligation to create one.

Second, operating an Obamacare exchange would be illegal in 14 states. Alabama, Arizona, Georgia, Idaho, Indiana, Kansas, Louisiana, Missouri, Montana, Ohio, Oklahoma, Tennessee, Utah, and Virginia have enacted either statutes or constitutional amendments (or both) forbidding state employees to participate in an essential exchange function: implementing Obamacare’s individual and employer mandates.

Third, each exchange would cost its state an estimated $10 million to $100 million per year, necessitating tax increases.

Fourth, the November 16 deadline is no more real than the “deadlines” for implementing REAL ID, which have been pushed back repeatedly since 2008.

Fifth, states can always create an exchange later if they choose.

Sixth, a state-created exchange is not a state-controlled exchange. All exchanges will be controlled by Washington.

Seventh, Congress authorized no funds for federal “fallback” exchanges. So Washington may not be able to impose Exchanges on states at all.
(In other words, President Obama would have to go to John Boehner to get funding for the fall back exchanges.  Somewhere John Boehner must be smiling.  Heh.  Now apparently, Kathleen Sebelius and the HHS are using money that was going to be appropriated to the States as an enticement to help set up state health exchanges but some states have opted out of setting up a state health exchange.  Yes, it’s illegal but to keep these exchanges going, the HHS and Obama will need to get it from the House.)

Eighth, the Obama administration has yet to provide crucial information that states need before they can make an informed decision.

Ninth, creating an exchange sets state officials up to take the blame when Obamacare increases insurance premiums and denies care to the sick. State officials won’t want their names on this disastrous mess.

Tenth, creating an exchange would be assisting in the creation of a “public option” that would drive domestic health-insurance carriers out of business through unfair competition.

Eleventh, Obamacare remains unpopular. The latest Kaiser Family Foundation poll found that only 38 percent of the public supports it.

Twelfth, defaulting to a federal exchange exempts a state’s employers from the employer mandate — a tax of $2,000 per worker per year (the tax applies to companies with more than 50 employees, but for such companies that tax applies after the 30th employee, not the 50th). If all states did so, that would also exempt 18 million Americans from the individual mandate’s tax of $2,085 per family of four. Avoiding those taxes improves a state’s prospects for job creation, and protects the conscience rights of employers and individuals whom the Obama administration is forcing to purchase contraceptives coverage.

Finally, rejecting an exchange reduces the federal deficit. Obamacare offers its deficit-financed subsidies to private health insurers only through state-created exchanges. If all states declined, federal deficits would fall by roughly $700 billion over ten years.  

For similar reasons, states should decline to implement Obamacare’s Medicaid expansion. The Supreme Court gave states that option. All states should exercise it.

Medicaid is rife with waste and fraud. It increases the cost of private health care and insurance, crowds out private health insurance and long-term-care insurance, and discourages enrollees from climbing the economic ladder. There is scant reliable evidence that Medicaid improves health outcomes, and no evidence that it is a cost-effective way of doing so.

My colleague Jagadeesh Gokhale estimates that expanding Medicaid will cost individual states up to $53 billion over the first ten years. That’s before an emboldened President Obama follows through on his threats to shift more Medicaid costs to states.

Neither the states nor the federal government have the money to expand Medicaid. If all states politely decline, federal deficits will shrink by another $900 billion.

Now is not the time to go wobbly. Obamacare is still harmful and still unpopular. The presidential election was hardly a referendum, as it pitted the first person to enact Obamacare against the second person to enact it. Since the election, many state officials are reaffirming their opposition to both implementing exchanges and expanding Medicaid.

If enough states do so, Congress will have no choice but to reopen Obamacare. With a GOP-controlled House, opponents will be in a much stronger position than they were when this harmful law was enacted.

Yeah, I know, it’s a lot of information.  Bottom line is so long as the GOP controls the House, they can refuse to fund federal exchanges after they have been set up  since Obamacare didn’t set up any annual funding for federal fallback exchanges.  As I alluded to earlier, Sebelius only has the money that was appropriated to help states set up a state health care exchange.   For even more hilarity, compare Senator Baucus’ contradicting statements between this article and what he actually said in the Senate Committee hearings cited in the Cato paper regarding Congressional intent on exchanges.  The whole house of cards would eventually come down because Boehner simply could starve the exchanges.  On top of that, the IRS Rule is likely to be struck down in court or go to the Supreme Court at worst, then there is Attorney General Scott Pruitt’s case regarding the penalty loophole regarding federal exchanges in Obamacare, then there is the Hobby Lobby case against the HHS mandate to provide for pharmaceutical means of abortion, etc.

Download and read that Cato Institute paper.  President Obama and Kathleen Sebelius assumed that states would run these exchanges and foot the bill for it, though the exchanges would be run by Washington anyway.  The problem is the 2009 and 2010 gubernatorial elections happened which expanded the number of governorships the GOP held.  Why should states bankrupt themselves for this kind of deal?  Why do you think the Obama Administration extended the deadline for states to set up the “state” health exchanges from tomorrow to now December 14?  It’s not from the goodness of their own heart I can tell you that.  They know if a huge number of states refuse to set up the exchanges and foot the bill, it is highly unlikely Obamacare can be implemented.  The only thing left is the tax increases and then that runs into legal trouble because then you’ll see lawsuits from individuals who claim harm because they are getting unduly taxed for health care they were supposed to get.  What a lovely mess.  Heck, even Democratic governor Jay Nixon said Missouri won’t set up a state health exchange.  Yes, this bill is that bad.

Okay, so let’s say that all the court rulings go against the GOP, what have they lost?  Nothing.  Federal exchanges are set up with the Feds controlling them (though they were going to be controlled by the Feds if the states set up the exchanges) and then Obama has to try to get funding from Boehner to keep them running since the legislation didn’t set up any funding for that.

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