The Mandate’s Final Hours

Published June 25, 2012

Consumer Power Report #332

The White House is waiting on pins and needles for what the week will bring. The U.S. Supreme Court will determine whether the single significant domestic policy achievement of the Obama presidency is cut to the quick or felled entirely. By the end of the week, Obama could become Mister Irrelevant on the domestic policy scene, even after all the work put into passing his signature health care law.

Forget the tea leaves, the rumors, the friend who has a friend: The very fact that this question is going to be resolved by the Supreme Court this week proves that decades of writing and work by Randy Barnett, David Rivkin, and a handful of other attorneys has been worth it. Just three years ago, established opinion as to the mandate’s constitutionality dismissed their concerns and led to Democratic leaders ignoring any questions as to its justification.

“Congress held no hearing on the plan’s constitutionality until nearly a year after it was signed into law. Representative Nancy Pelosi, then the House speaker, scoffed when a reporter asked what part of the Constitution empowered Congress to force Americans to buy health insurance. ‘Are you serious?’ she asked with disdain. ‘Are you serious?’ …

‘It led to some people taking it too lightly,’ said a Congressional lawyer who like others involved in drafting the law declined to be identified before the ruling. ‘It shouldn’t strike anybody as a close call,’ the lawyer added, but ‘given where we are now, do I wish we had focused even more on this? I guess I would say yes.’

This wasn’t a partisan matter at the time. As Rivkin notes:

“Nobody in Congress is interested in constitutional issues. … The Republicans on the Hill were no better than the Democrats. It really was very late in the game when Republicans realized there would be no policy deal and began to look at the constitutional issues.”

Yet Ezra Klein’s argument that Republicans were in some united opinion in support of the mandate is a bit too all-encompassing in my view. Peter Suderman responds:

“But I think Klein goes slightly too far in writing that the mandate was ‘at the heart of Republican health-care reforms for two decades.’ This overstates the strength and depth of the Republican party’s support for the policy. … The mandate was not then and did not go on to become a core policy for Republican legislators in Congress; it wasn’t something any GOP elected official really wanted, that any of them would have traded anything or risked anything for. It was one part of one plan – a plan offered in a moment when a handful of Republican legislators felt like they had to offer something, anything – that never made it to a vote.”

It’s certainly true that many Republicans supported, and a few still support, an individual mandate. But Republicans never elevated health care reforms as a policy arena, meaning that few outside those who worked in policy for a living even knew of this idea prior to Mitt Romney’s deployment of it in Massachusetts. The truth is very few politicians on the right thought about health policy at all prior to the past few years, which is partly why they ended up in this predicament.

But one of the other bills Klein has cited as an example of Republican endorsement actually reveals what happened when conservatives were challenged on the mandate, even two decades ago. Note the second bill in this list, a proposal by Oklahoma Senator (and prominent conservative) Don Nickles introduced in 1993, one with 24 Republican co-sponsors. The bill is here, and you’ll note a bit of text at the bottom of the first page that says “Star Print.” Unless you’re a Hill staffer (or in my case, a former one), you probably don’t know that a Star Print is what a member does when there’s an error or problem with a bill and they want to retain the co-sponsors and date of introduction in the original. It’s there because Nickles swapped out his bill … to remove the mandate. Nickles explains why here – he changed his mind when confronted with opposing arguments.

And guess who was apparently behind that change of opinion? None other than David Rivkin, writing in the Wall Street Journal with Lee Casey almost two decades ago, with total prescience of the arguments the Court is tackling this week:

“In the new health-care system, individuals will not be forced to belong because of their occupation, employment, or business activities – as in the case of Social Security. They will be dragooned into the system for no other reason than that they are people who are here. If the courts uphold Congress’s authority to impose this system, they must once and for all draw the curtain on the Constitution of 1787 and admit that there is nothing that Congress cannot do under the Commerce Clause. The polite fiction that we live under a government of limited powers must be discarded – Leviathan must be embraced.”

Rivkin and his band of libertarian allies are the real heroes in this meandering mess of policy. The Republicans abrogated their responsibility to pursue limited government policy. The Democrats abrogated their responsibility to even consider whether something was constitutional before pursuing it. The libertarian message “that Water would certainly wet us, as Fire would certainly burn,” fell on deaf ears for too long – but the handful of principled legal minds never gave up hope that Roscoe Filburn would be avenged. This week, we find out if they’re right.

One final note: If you’re interested in contacting someone for a quote, Dean Clancy has produced an excellent list of experts.

— Benjamin Domenech



Michael Cannon and Jonathan Adler on a key aspect of the law the IRS is pursuing without the legal authority to do so.

Under the guise of implementing the law, the Internal Revenue Service has announced it will impose a tax of up to $3,000 per worker on employers whom Congress has not authorized a tax. To make things more interesting: If the IRS doesn’t impose that unauthorized tax, the whole law could collapse.

The Act’s “employer mandate” taxes employers up to $3,000 per employee if they fail to offer required health benefits. But that tax kicks in only if their employees receive tax credits or subsidies to purchase a health plan through a state-run insurance “exchange.”

This 2,000-page law is complex. But in one respect the statute is clear: Credits are available only in states that create an exchange themselves. The federal government might create exchanges in states that decline, but it cannot offer credits through its own exchanges. And where there can be no credits, there is nothing to trigger that $3,000 tax.

States are so reluctant to create exchanges that Secretary of Health and Human Services Kathleen Sebelius estimates she might have to operate them for 15 to 30 states. Even if she manages that feat, the law will still collapse without the employer mandate and tax credits.

To prevent that from happening, on May 18 the IRS finalized a rule making credits available through federal exchanges, contrary to the express language of the statute.

Because those credits trigger penalties against employers, the IRS is literally taxing employers and spending billions without congressional authorization. Estimates by the Urban Institute indicate that had this rule been in effect in 2011, it would have cost at least $14.3 billion for HHS to run exchanges for 30 states. About 75% of that is new federal spending; the remainder is forgone tax revenue.

The IRS doesn’t have a leg to stand on here. It has not cited any express statutory authority for its decision, because there is none. The language limiting tax credits to state-established exchanges is clear and consistent with the rest of the statute. The law’s chief sponsor, Senate Finance Committee chairman Max Baucus (D-Mont.), is on record explaining creation of an exchange is among the conditions states must satisfy before credits become available. Indeed, all previous drafts of the law also withheld credits from states to push them to cooperate.



Avik Roy notes the Democratic sniping:

Peter Baker of the New York Times notes that the majority of Democrats were dismissive of the mandate’s constitutional challenges in 2010. “Are you serious?” said Nancy Pelosi, scornfully, at the time. The few who did worry publicly, like NYU Law prof Michael Waldman, were quickly shot down by their peers.

President Obama, the former con law lecturer, wasn’t so naïve. As Ron Suskind details in his book Confidence Men, Obama “was concerned about legal challenges” to the mandate, but was also told of Jonathan Gruber’s work – work that heavily influenced the estimates of the Congressional Budget Office – that estimated that Obamacare would cover half as many people without a mandate.

Indeed, Democrats in Congress were also aware of the mandate’s weakness. The House version of the bill did contain a severability clause with regard to the individual mandate, because they appreciated this risk. The Senate version of the bill, however, did not.

As John McDonough writes in his book Inside National Health Reform, “By the late fall [of 2009], Senate Republicans had begun to argue against the constitutionality of the individual mandate as a talking point against reform, and Democratic staffers decided to leave out severability to deprive Republican senators of a talking point against the law – Republicans would claim that the inclusion of the severability showed the Democrats’ lack of confidence.”

Because of Scott Brown’s election in Massachusetts, Democrats were not able to merge the Senate and House versions in the traditional way, and had to pass the Senate version mostly intact – without the severability clause.

The point being: Many Democrats, including the President, were well aware of the mandate’s constitutional risks. They went forward with it anyway, because getting the right “number” in terms of the law’s coverage expansion was, in their view, more important than doing right by the Constitution. We’ll soon find out if they will pay a price for that decision.

More on the infighting here.

SOURCE: Forbes


What happens to the money states already have in their coffers?

If the U.S. Supreme Court declares all or parts of the national health law unconstitutional this week, legal experts say it is unclear what will happen to billions in federal money provided by the law that has already been sent to state and local governments, and private organizations.

To date, Washington has written checks for $13.7 billion, according to a federal funds tracker created by the Kaiser Family Foundation. Of that, 31 percent, or about $4.2 billion, has gone directly to state and local governments.

Even if the Affordable Care Act survives the high court review, Congress could attempt to repeal all or parts of the law, putting the billions already spent and billions more to come in question. “It’s definitely a concern,” says Matt Salo, director of the National Association of Medicaid Directors. “What the Congress giveth, the Congress can taketh away.”

Salo says it would be surprising if the federal government wanted a refund of money states have already spent, but Washington could take back funds that have been obligated but not spent.

The biggest chunk of state grants – $1.2 billion – went to insurance industry reforms and to create online shopping sites known as health insurance exchanges. Part of that money also went to pay claims for people with pre-existing conditions who became newly insured through the federal-state high-risk insurance pools that became available under the health law.

The second largest portion went for special projects primarily aimed at cost containment in Medicaid. These include grants for programs such as aging and disability resource centers designed to help people find community-based long-term care services. States also received grants to develop innovative approaches to caring for so-called dual-eligibles who qualify for both Medicaid and Medicare.

SOURCE: Pew Center on the States


After the oral arguments before the Court, a responsible administration would’ve waited to dole out more cash toward a law that could soon be changed dramatically.

But the administration has forged ahead, spending at least $2.7 billion since oral arguments in the case ended on March 28. That’s more than double the amount that was handed out in the three-month period leading up to the arguments, according to a POLITICO review of funding announcements from the Department of Health and Human Services.

While much – if not all – of this funding was in the pipeline well before March, the timeline for handing out specific funds is not set in stone, which gives the agency leeway over the kinds of dollars it has been handing out.

And the stakes have increased as the date of a Supreme Court ruling approaches, because money that is spent most likely won’t have to be repaid. But remaining funds will dry up if the court strikes down the law.

The court is expected to announce its decision this week.

The $2.7 billion includes grants and awards that have been handed out since the Supreme Court arguments – including more than $90 million in funds for health insurance cooperatives that HHS announced Friday. By contrast, the administration gave out about $1 billion in grants, loans and other awards during the three months before the Supreme Court arguments.

SOURCE: Politico


Hopes dashed.

With that lottery, Oregon became a laboratory for studying the effects of extending health insurance to people who previously did not have it. Health economists say the state has become the single best place to study a question at the center of debate in Washington as the Supreme Court prepares to rule, likely next week, on the constitutionality of President Obama’s health care law: What are the costs and benefits of coverage?

In a continuing study, an all-star group of researchers following Ms. Parris and tens of thousands of other Oregonians has found that gaining insurance makes people feel healthier, happier and more financially stable.

The insured also spend more on health care, dashing some hopes of preventive-medicine advocates who have argued that coverage can save money – by keeping people out of emergency rooms, for instance. In Oregon, the newly insured spent an average of $778 a year, or 25 percent, more on health care than those who did not win insurance.

For the nation, the lesson appears to be mixed. Expanded coverage brings large benefits to many people, but it is also more likely to increase a stretched federal government’s long-term budget responsibilities.

SOURCE: New York Times


This includes populations already covered by state programs:

Oregon’s legislature, for example, gave final approval this year to broad changes in the state’s health care delivery system that will channel $1.9 billion in federal dollars to the state over the next five years.

Oregon aims to fully integrate comprehensive medical and dental care with behavioral health and substance abuse services. It plans to do that by setting up so-called “coordinated care organizations,” licensed and monitored by the state, which will help patients navigate the system and ensure patients have access to local support services – all for one fixed fee per customer.

Governor John Kitzhaber, a physician and the author of the overhaul, secured tacit approval from Washington in May – just in time to add $620 million in federal funds to the state’s biennial Medicaid budget.

New Jersey and Nevada are seeking federal approval for similar changes in the way health care is delivered under the Medicaid program. Both states plan to target patients with certain chronic illnesses and those who suffer from both medical and behavioral health problems.

California, Delaware, New York and Texas have secured federal approval to include elderly and disabled patients in managed care programs, and Florida, Kansas, New Jersey and New Mexico have similar requests pending, according to a new report from the Kaiser Family Foundation.

And despite the shaky status of the Affordable Care Act, a handful of states have received federal approval to get a head start on the Medicaid enrollment expansion that the Act will require in 2014.

California, Colorado, Minnesota, Missouri, New Jersey, Washington State and the District of Columbia have received federal money to expand Medicaid coverage for low-income, non-disabled adults immediately. Arizona, Ohio and Illinois have applications pending. In most cases, these moves mean more federal money for adults who already are covered by state-funded health programs.

SOURCE: Pew Center on the States