Interesting notes on health care decision

Geoffrey Lawrence

The blogosphere is abuzz today with early reaction to the Supreme Court’s decision upholding the constitutionality of the Affordable Care Act (ACA) – a bill that, ironically, is neither affordable nor has any impact on the availability of health care.

(It does change the rules for buying and selling health insurance, but possession of health insurance and access to care are two different things. Just look at the benefits currently promised by Medicaid. On paper, they’re more generous than any corporate health insurance plan in America. In practice, however, Medicaid recipients already have a difficult time receiving any of the promised benefits because the program under-reimburses providers. Recent surveys show that only 40 percent of physicians accept all new Medicaid patients.)

There are some interesting aspects to the Court’s decision. Although, for the most part, the Court upheld the bill’s constitutionality, it significantly altered the legal rationale offered by the Obama Administration.

The Court changed two major aspects of the bill, and these changes will have a major impact on the health care policy debate moving forward:

Finding #1:
The majority opinion reverses the President’s pronouncements that the fine to be levied against individuals who not purchase a government-approved health insurance policy is a “penalty” and not a “tax.” Instead, says the Court, this “penalty” has the effect of a “tax” and, therefore, should be classified as such.

This change in terminology is critical, because the Court finds that the ACA is only constitutional based upon Congress’s taxing authority and the General Welfare Clause. If the fine was truly a “penalty” and not a “tax,” as the Administration alleges, then the Court would likely have found no constitutional authority for the bill. While the the government claimed authority to impose the penalty under Congress’s power to regulate interstate commerce, the Court strongly disagreed. In the Court’s words:

The individual mandate forces individuals into commerce precisely because they elected to refrain from commercial activity. Such a law cannot be sustained under a clause authorizing Congress to ‘regulate Commerce.’

At the least, this aspect of the Court’s opinion makes it very clear that the ACA effectively imposes a huge tax increase on the middle class.

The most significant implication of this change in understanding, however, is that, by clearly moving the individual mandate into the category of tax policy, the Court has subjected the provisions of the ACA to the annual budget process.

That means Congress can effectively kill the ACA by removing the tax in any given year. And, since all appropriations bills must originate in the House – currently controlled by opponents of the bill – the fight over ObamaCare may just be beginning.

Finding #2
The Court ruled that Congress cannot force the states to pay for its envisioned entitlement expansion.

As NPRI has highlighted extensively, the ACA aimed to expand health insurance coverage in two ways. First, it would require states to expand Medicaid eligibility rules to include all individuals living at up to 133 percent of the Federal Poverty Line, including childless adults. Because of the mandate (now classified explicitly as a tax), all eligible individuals were expected to enroll in order to avoid the new penalty (tax). Second, it would provide federally financed subsidies to individuals and families living between 133 percent and 400 percent of the Federal Poverty Line to purchase insurance on the new state or federal exchanges.

The Medicaid expansion component was expected to compel state taxpayers to divert billions of dollars away from schools, prisons, police and fire safety and other major state expenses in order to finance Congress’s health care agenda. As NPRI’s analysis shows, the expense to Nevada alone would have approached $5.4 billion by 2023.

The ACA originally declared that if states did not comply with the Medicaid expansion, they would lose all federal matching funds for Medicaid – including funds dedicated toward the benefits that were already in existence.

The Court found that Congress lacks the authority to compel state action in this manner. So, according to the Court, states do not have to divert money from education and other policy areas to Medicaid if they do not want to.

Essentially, the Court echoed a message that I have been saying since the ACA’s passage: If Congress wants to create a huge new entitlement program, then Congress – not the states – should pay for it.

Cash-strapped states – 49 of which have balanced budget requirements – have little incentive to expand their Medicaid entitlements as Congress had hoped.

That means that a new “doughnut hole” will emerge in states that do not offer Medicaid coverage for all individuals up to 133 percent of the Federal Poverty Line. In Nevada, for instance, individuals living between 100 percent and 133 percent of FPL will be ineligible for both Medicaid and the federal subsidies to purchase insurance on the exchanges.

That doughnut hole could spark a new drive in Congress to amend the ACA so that federal subsidies would be available to all individuals below 400 percent of FPL who are not eligible for Medicaid. This, of course, would come at great expense the federal government, exploding the costs of the entitlement.

At the same time, it appears that the “maintenance of effort” requirements placed on states by the ACA would also have no effect under the Court’s ruling. This means states will have every incentive to drop out of Medicaid entirely with the expectation that Congress would provide subsidies to all formerly Medicaid-eligible individuals to purchase insurance on the exchanges.

Congress wanted to impose substantial new health care liabilities on the states with its passage of the ACA, but now the battle over “who pays for what” could eventually lead to even greater expenses for the federal government and a potential dismantling of Medicaid.

Some will say the fight over ObamaCare is settled now that the Supreme Court has ruled, but in reality, the Court has just cleared the way for a longer, more protracted fight.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.