Posts

MPI Policy Note 01-13: Medicaid Expansion Can Wait

Proponents of Medicaid expansion argue that it would insure more people, that it takes advantage of “free” federal money and that it will create jobs and pump up local economies. But the fact that barely half the states are taking action to expand Medicaid indicates that this federal giveaway may come with unacceptable risks and costs, including:

  • Expansion will dump more people into a system that provides poorer access to care and poorer health outcomes than private insurance.
  • Federal matching funds are neither free nor guaranteed, potentially leaving the state with an unsustainable funding requirement.
  • Expanding Medicaid without fundamentally reforming it perpetuates its shortcomings and will crowd out other public spending priorities.


There is no cost to delaying, but expansion is forever. This decision should wait until we can learn more.

There are alternatives to Medicaid expansion that will actually provide quality care at lower costs, and without creating an entirely new dependent class of young, able Montanan adults. Our policy note gives you all the information you need to see why and how we should take a pass on expansion and concentrate on true reforms.

Medicaid Expansion Policy Note

Let Other States Experiment with Medicaid Expansion – Part II

Medicaid expansion is supposedly a no-brainer. It’ll provide insurance for a lot low income people. It’s free federal money. And it’ll create jobs and pump up local economies. So why are the 50 states almost evenly divided on whether to take this gift horse or send it out to pasture?

It’s because a lot of governors and legislatures have decided that at best the jury’s still out on whether expansion is a good idea; and more likely it’s a bad idea that will hurt many of the people it’s supposed to help and turn into an albatross around taxpayers’ necks.

I’m open to being proven wrong, but I agree with those who say that Medicaid expansion as laid out in Obamacare is both bad welfare policy and bad economic policy. It’s bad welfare policy because it shifts primarily young, able and to a large extent childless adults into a system with demonstrably inferior access to care, and then traps them there. Forty four percent of the newly eligible would be adults under the age of 34, and seventy five percent would be childless.[i] In addition, a fourth of all new enrollees would be dumped into Medicaid from private insurance plans that almost always provide better access to care than Medicaid.[ii] The difference is in having health insurance versus getting health care.

I have a fishing license. That gives me the right to stand in a river waving my fly rod around, but it doesn’t guarantee that I’ll catch any fish. Same goes for health insurance versus health care. Medicaid recipients encounter barriers to primary care at nearly twice the rate of those with private insurance.[iii] Because of this lack of access to primary care, they then show up in emergency rooms at rates nearly twice those of the privately insured, but sicker and much more expensive to treat.[iv] Shoveling well over 70,000 new Montanans into this system[v] while also decreasing provider reimbursements under Obamacare won’t make access to quality care any easier for these folks or for anyone else in the state.

Medicaid expansion is also bad economic policy. In fact, it’s pure crony capitalism. You can’t swing a dead cat in Helena right now without hitting a hospital or pharmaceutical lobbyist trying to get their surgical gloves into taxpayers’ wallets. Yes, there’s good evidence that the “free” money coming from Washington may create around twelve thousand jobs in Montana; but will those jobs create health benefits that are commensurate with their costs? If not, the money is better left in the private economy where it can be spent more productively. A recent New England Journal of Medicine article said that “Treating the health care system like a (wildly inefficient) jobs program conflicts directly with the goal of ensuring that all Americans have access to care at an affordable price.”[vi] And anyway, it’d be much cheaper for Montana taxpayers to just put those who are eligible for federal subsidies into the new exchanges and let Washington pay their entire bill. It’s free money, right?

Except that it’s not. It’s taxpayer money whether you write the check to Helena or to Washington. The net cost to Montana taxpayers of Medicaid expansion through 2021 is over $50 million according to one estimate,[vii] and closer to $100 million according to another.[viii] That’s after the “free” money and jobs and tax revenues, and assumes the federal government will keep its promise to cover 100% of expansion costs in the early years and 90% later on, despite the fact that even the President’s own past two budgets included reductions in those commitments.[ix]

In reality nobody knows what it will cost, but there’s precious little precedent for entitlement spending coming in below or even near initial estimates. In 1965 Medicare was estimated to cost $9 billion annually by 1990. The actual cost in 1990 was $67 billion.[x] There’s no reason to think Medicaid expansion estimates will fare any better, and Montana taxpayers would be on the hook for the difference since it’s politically unlikely that these entitlements would be reversed once they’re put in place.

So why not wait a couple of years? Let’s see how things go in California and Illinois and other bastions of state fiscal responsibility, and then take a look at what’s working and what’s not so we can make an informed decision. Or, we could try true reform and turn Medicaid into a system that really does provide quality access to quality care for more people who need it. We’d do that by reconnecting the patient to the provider and the cost to create responsible consumers rather than filtering both the funding and the care through a self-perpetuating bureaucracy. But that’s a topic for another day.

 


[i] The Urban Institute, “Opting in to the Medicaid Expansion under the ACA: Who Are the Uninsured Adults Who Could gain Health Insurance Coverage,” August 2012,  pp. 8-9.

[ii] University of Montana Bureau of Business and Economic Research, “An Estimate of the Economic Ramifications Attributable to the Potential Medicaid Expansion on the Montana Economy,” January 2013, p. 6.

[iii] 16.3% of Medicaid patients encountered barriers versus 8.9% of those with private insurance. Annals of Emergency Medicine, “National Study of Barriers to Timely Primary Care and Emergency Department Utilization Among Medicaid Beneficiaries,” 2012, p. 4.

[iv] Ibid

[v] Urban Institute, op. cit., p. 18 and BBER, op. cit., p. 7.

[vi] Katherine Baicker, Ph.D. and Amitabh Chandra, Ph.D, The New England Journal of Medicine, “The Health Care Jobs Fallacy, June 28 2012, p. 2435.

[vii] BBER, op. cit., p. 29.

[viii] The Heritage Foundation, “Obamacare and the Medicaid Expansion: How Does Your State Fare?” March 5th 2013, http://blog.heritage.org/2013/03/05/obamacare-medicaid-expansion-state-by-state-charts/.

[ix] Charles Blahous, Mercatus Center, “The Affordable Care Act’s Optional Medicaid Expansion: Considerations Facing State Governments,” 2013, p. 32.

[x] Conn Carroll, The Foundry, “Health Care Reform Cost Estimates: What is the Track Record?” August 4th 2009, http://blog.heritage.org/2009/08/04/health-care-reform-cost-estimates-what-is-the-track-record/.

More On Medicaid Expansion

Had a good time on KMMS this morning talking about Medicaid expansion so I thought I’d jot down a few notes from the show.

If you’re on MPI’s website you’re already active and aware on policy issues so I won’t belabor the point with a lot of background, but in a nutshell the Governor is about to roll out his plan to expand Medicaid as our masters in Washington have directed to include people earning up to 138% of the federal poverty level. That’s a bad idea for several reasons, as I argued in an Op Ed back in January. We’ll have a lot more on this soon, but here’s a quick outline:

  1. It’s bad welfare policy: According to an Urban Institute study that pretty much everyone is using, 43% of those added to Medicaid in MT would be under 35 years old and 75% would be childless. Unless they’re disabled, putting young, unfettered individuals on public assistance without some kind of work or payment in kind system is unfair to taxpayers, creates all the wrong incentives, and traps them in an entitlement web that’s tough to get out of.
  2. Will cost taxpayers more than just the expansion: Hospitals claim it will save taxpayers and those who are privately insured money because putting more people on Medicaid will reduce their unreimbursed or charity care costs. Don’t believe it. In states like Maine where they’ve already been down this road, those costs increased as people moved from private insurance to Medicaid and uninsured numbers remained virtually unchanged. Just think about it: how will adding 50,000 people from an at-risk population (lower incomes equate to poorer health) to a program with low and sinking reimbursement rates save money?
  3. Job numbers are probably overstated: We need to do a little more homework on this – and will – but claims of more jobs from “free” federal money have been wildly overstated in the past and probably are now as well. And besides, as argued in a New England Journal of Medicine paper called “The Health Care Jobs Fallacy,” if the same health care outcomes can be achieved with fewer resources that leaves more for schools, transportation, safety, and other public priorities.
  4. And finally, it ain’t free money: Over 30% of the “free” money will be borrowed by the federal government, and the remaining will either paid for by you on April 15th or come out of other spending priorities. Direct costs to Montana taxpayers of expansion range from $50 million to around $150 million depending on whom you believe, and there are few examples of entitlement program cost estimates being understated. President Obama’s last two budget submissions included increasing the states’ share of Medicaid reimbursements, so talk of 100% federal cost share is doubtful in the future, and so-called circuit breakers that would cancel expansion if the feds renege are meaningless. Nobody is going to take away this benefit once it’s been granted, so let’s wait a couple of years, see how they like it in other states, and then make an informed decision.

Now Is Not the Time for Medicaid Expansion

 Bozeman – Governor Bullock has decided to ignore the Schweitzer administration’s budget submitted last November and instead opt into Obamacare’s Medicaid eligibility expansion. This looks to be a patently bad idea; and even if it’s not there’s no reason to rush forcing Montana’s taxpayers into yet more unsustainable entitlement spending and to herd more of our citizens into a system that provides inferior care at great expense.

First let’s get a little background out of the way and then I’ll explain why it’s a bad idea.

Medicaid provides health insurance – not necessarily health care, but more on that later – to families with incomes up to 133 percent of the federal poverty level (FPL). Montana’s taxpayers currently pay about 33 percent of the program’s cost, with the federal government picking up the balance.

Last summer’s Supreme Court ruling let states decide whether to increase Medicaid eligibility to 138 percent of the FPL, which Obamacare tried to mandate. Many people portray this as “free money” since Washington says it will cover almost all the costs until 2017 and then ramp down to 90 percent of the costs after that. But that promise, like so many others that were made during the health care reform debate, simply doesn’t match the facts on the ground.
These facts argue against expanding Medicaid eligibility for two major reasons, one of them financial and the other one moral.

The financial reason is that we already know this expansion isn’t “free money” for the state. And the moral reason is that it will result in thousands of Montanans being dumped into a system that results in inferior access to care, with many of them forced out of much better private insurance plans.

Estimates of Montana’s potential share of expansion costs vary pretty wildly[i] but most come in between $100 million and $200 million,[ii] or the equivalent of between two hundred and four hundred new teachers, for example.[iii] Our costs increase for a lot of reasons, but I’ll just highlight a few obvious ones.

First, with Obamacare scheduled to cut $8 billion from Medicaid and $500 billion from Medicare, you can be sure that Montana’s health care providers will be coming to taxpayers to be made whole when their costs inevitably outpace their reimbursements under these government programs.

Next, the largest single increase will result from people who are eligible for Medicaid at the 133 percent FPL rate, but not currently enrolled, coming out of the woodwork as word gets out that eligibility has been expanded. Many of these people are technically uninsured today but would be enrolled in Medicaid and receive care if they needed it. Many others, though, have their own insurance and would simply shift from private to public coverage. Since they wouldn’t meet the new 138% FPL threshold, about 33% of their insurance costs would be shifted from them or their employers to Montana taxpayers.

And finally, for anyone who believes that the federal government will continue to reimburse states at the 100 or even 90 percent level, well, I’ve got a bridge to sell you. Washington’s budget woes are going to be transferred to the states, and states like Montana that get from Washington much more than we give are going to feel the pain first and most acutely.

Shifting our most vulnerable population to Medicaid is also immoral. Studies consistently show that Medicaid patients have poorer access to care than privately insured patients.[iv] Since Medicaid typically pays physicians 56 percent of the amount private insurers pay, fewer doctors are accepting new patients and they eventually wind up in hospitals with more serious conditions than those who are privately insured. In addition, there’s scant reliable evidence that Medicaid improves health outcomes at all, and zero evidence that it is the best way to improve health outcomes per dollar spent.

Expanding Medicaid will only worsen our health care system’s woes, increasing costs and decreasing access to quality care while adding a new entitlement burden on taxpayers and dumping thousands of low income Montanans into a failing program. There’s no rush to expand. If it works for other states we can always sign on. But this is one case where we shouldn’t lead with our chin.

Carl Graham is CEO of the Montana Policy Institute
 

_________________________________
[i] MT Department of Public Health and Human Services, “The Impact of Medicaid Eligibility Expansion and health Montana Kids Monitoring,” 12/2/2011, http://leg.mt.gov/content/Publications/fiscal/interim/financecmty_dec2011/SJ%2026%20ACA%20Medicaid%20expansion.pdf.
[ii] For example, Kaiser Commission on Medicaid and the Uninsured, “the Cost and Coverage Implications of the ACA Medicaid Expansion: National and State-by-State Analysis,”  11/2012, http://www.kff.org/medicaid/upload/8384.pdf.
[iii] Derived from data at teacherportal.com, http://www.teacherportal.com/salary/Montana-teacher-salary.
[iv] For a synopsis see The Heritage Foundation, Kevin D. Dayaratna, “Studies Show: Medicaid Patients Have Worse Access and Outcomes than the Privately Insured,” 11/9/2011, http://report.heritage.org/bg2740.

Pitfalls of the Patient Protection and Affordable Care Act for Montanans

“If you think health care is expensive now, wait until you see what it costs when it’s free.”    

  – P.J. O’Rourke

By Glenn Oppel, MPI Policy Director

The Patient Protection and Affordable Care Act (PPACA) was signed by President Barack Obama on March 23, 2010. If and when it is completely implemented, the ACA stands to radically change the landscape of the health care market and drive federal and state governments deeper into debt in the middle of the Great Recession.

Fundamental Threat to Liberty

The ACA will rewrite the relationship between the people and their government. It amounts to a violation of individual liberty by compelling individuals to consume a product while financially penalizing them if they fail to comply. If the ACA survives constitutional scrutiny it will open the door for the federal government to exercise increasing control over the economic decisions of Americans.

Unpopular

A June 2012 New York Times/CBS News Poll of 976 adults showed that 68 percent of them hope that the U.S. Supreme Court overturns the law. As for Montanans, a December 2010 poll of 600 Montana voters commissioned by the Montana Chamber of Commerce found that 60 percent opposed the federal health care reform. Interestingly, the same survey found that the top “financial or pocketbook concern” of Montanans was overwhelmingly “health care costs.” Obviously, Montanans do not see the ACA as a solution to the number one concern affecting their finances.

False Promises of Universal Coverage

Individual Mandate: Although the centerpiece of the ACA, how young and healthy individuals respond to the mandate presents a major problem that will undermine the intended purpose. Many young and healthy individuals will opt to pay the penalty rather than obtain coverage for the simple fact that the penalty is less of a financial burden. This is exactly what happened in Massachusetts after passage of that state’s health care reform, which, ostensibly, the ACA is patterned after. Health insurance plans rely on participation from the young and healthy in order to achieve actuarial soundness and, therefore, affordability and profitability.

Employer Mandate: Although the employer mandate has the same purpose as the individual mandate – universal health insurance coverage – it also will have unintended consequences that will defeat its purpose. Employers will be inclined to drop health insurance benefits for their employees because it is less expensive to pay the ACA’s penalty of about $2,000 per worker. The penalty costs are modest compared to providing health care for an employee. Furthermore, the ACA amounts to a federally mandated increase in the cost of hiring new employees. When the nation’s unemployment is hovering over 8 percent and Montana’s over 6 percent, the timing of the ACA’s negative impact on job creation could not be worse.

Exchanges: The purpose of the exchanges in the ACA is to allow individuals and workers in small companies to create larger risk pools to achieve economies of scale enjoyed by larger companies. The exchanges are predicated on the theory that market share will enable the bargaining down of prices and therefore reduce premiums. It is not as though the exchanges will operate free from heavy federal and state regulation, so it is hardly fair to label the exchanges a competitive environment when insurance plans in the exchanges must comply with the ACA. The Massachusetts health care reform set up an “exchange” scheme called the “Connector.” It was predicted to reduce premiums by 25 to 40 percent, but premiums still went up 11 percent.

Insurance Market Overregulation

The ACA’s insurance regulations will increase premiums, reduce choice, and drive consumers to government-run insurance. When it comes to the litany of insurance regulations, the ACA violates the principle that “there is no such thing as a free lunch.” Currently, health insurers do have some latitude to hold down costs by structuring plans so that consumers shoulder some costs. The ACA bans many of these practices that hold down costs predicated on consumer responsibility, including:

 ban on denying coverage and underwriting based on health status except for older patients and smokers;

 ban on rescissions (revoking coverage);

 ban on lifetime limits;

 limits on deductibles;

 maintain medical loss-ration (insurers must maintain a ratio of benefits paid to premiums collected of 85 percent for large groups and 80 percent for small groups and individuals);

 allow parents to keep their children on until age 27; and

 agency power (wide latitude given to the U.S. Secretary of Health and Human Services to promulgate rules to administer the new market and to singlehandedly create public policy when unanticipated situations arise).

Massive Expansion of the Welfare State

Massive expansion of Medicaid: The ACA mandates that the states expand Medicaid to cover all with incomes below 133 percent of the federal poverty level, with generous matching grants from the federal government. Between 2014 and 2019, federal spending on Medicaid is projected to increase $443.5 billion while state outlays will increase $21.1 billion. Imposing an eligibility threshold of 133 percent of FPL in Montana will dramatically increase enrollment and cost in our Medicaid program. Depending on participation rate assumptions, by 2019 Montana will see Medicaid additional enrollment increases in the range of 57,000 to 79,000, with an additional cost burden for the state budget ranging from $100 million to $155 million.

Subsidies for individuals not eligible for Medicaid: Individuals with incomes too high to qualify for Medicaid but below 400 percent of poverty or $88,000 will be eligible for subsidies to assist purchase of private insurance. The subsidy will be in the form of a refundable tax credit that will increase federal costs about $457 billion between 2014 and 2020.

Subsidies for small businesses: Businesses that have 25 or fewer employees with average wages less than $50,000 are currently eligible for tax credits. To be eligible, the business must provide insurance to all full-time workers and pay at least 50 percent of the costs of coverage. Once exchanges are operational, businesses with 10 or fewer employees with average wages below $25,000 will be eligible for a tax credit of up to 50% of the employer’s contribution toward a worker’s insurance. According to a July 2011 member survey by the National Federation of Independent Business, by overwhelming margins small employers believe that the ACA will not reduce health care inflation, will not reduce the administrative burden, and will add to the federal deficit. The survey also found that small employers believe that low-wage employees with large premium cost-share will have a powerful incentive to leave an employer’s health plan for the newly established and heavily subsidized exchanges. If employees begin to leave for an exchange, 26 percent of small employers that currently offer insurance say that they are very likely to explore dropping their health insurance plans while another 31 percent say they are somewhat likely to do so.

Undermining Consumer-Directed Health Plans

The ACA places considerable new restrictions on HSAs and FSAs. For example, the ACA increases tax penalties for HSA withdrawal and narrows the definition of “qualified medical expense” (QME) so that common expenses such as over-the-counter medications are not a QME. Of course, as mentioned, the fact that the ACA is likely to squeeze high-deductible, catastrophic plans out of the new market could be the demise of HSAs since federal law requires HSAs to be couple with such plans. As for FSAs, the ACA cut the maximum tax-exempt contribution to these accounts in half from $5,000 to $2,500 starting last year. The new definition of QME also will be applied to FSAs.

Mind Boggling Cost in the Deficit Age

The ACA is projected to cost the federal government $2.7 trillion over 10 years of full implementation, which, after accounting for aforementioned penalty revenue and new tax revenue (see below), will add $823 billion to the national debt. It is hard to predict how the State of Montana will fund the additional $100 million to $155 million in Medicaid expenditures through 2019. It may be true that Montana is currently projecting a $600 million surplus for the 2015 Biennium, but the structural deficits in the state budget due to unfunded liabilities in various public employee and teacher pension systems dwarfs the surplus. The additional costs associated with the ACA’s Medicaid mandate gobbles up resources that Montana could use to address its structural deficits.

New and Increased Taxes During the Great Recession

If there is one way to impede economic progress and deepen a recession, it is to raise taxes. The ACA imposes over $629 billion in new or increased taxes in its first 10 years of operation. When you couple the ACA’s new and increasing taxes with the possibility that the Bush Administration tax cuts could expire at the end of 2012, America could plunge even deeper into recession. These taxes include:

 taxes on “Cadillac” insurance plans;

 payroll tax hikes;

 taxes on investment income;

 higher threshold to itemized deductions for medical expenses;

 tax on prescription drugs;

 tax on medical devices;

 additional taxes on insurers; and

 taxes on tanning beds.

Taxpayers likely are leery of the fact that the Internal Revenue Service will add 11,800 additional agents, auditors, and examiners for enforcement of the ACA.

 

Consumer-Directed Healthcare Reform

As the U.S. Supreme Court nears its decision on the constitutionality of federal health care reform, the Montana Policy Institute endeavors to emphasize the need for true reform centered on the patient consumer. We believe that patients and their doctors are best equipped to make decisions about what care is best, not bureaucrats in Washington, DC, or our state capital of Helena. The root problem lies in the fact that there is a vast wedge between patients and their healthcare providers caused by heavy government intervention and the unintended consequences of a third-party payer system. The following consumer-directed options will help individuals and families make – and own – their decisions.

Individual ownership of insurance policies. Equalize tax treatment by extending to individuals the tax deduction that allows employers to own insurance. Also make those plans portable when workers leave or change jobs.

Leverage health savings accounts. Coupled with affordable high-deductible plans, HSAs empower individuals to monitor their health care costs while establishing incentives for individuals to use only those services that are necessary. HSAs are growing in popularity but will be undermined by federal healthcare reform.

Allow interstate purchase of healthcare insurance. Allowing consumer to shop for plans beyond their state borders will enhance competitiveness in the health insurance market. Because of fewer state regulations, plans in other states are more affordable. Because it will empower consumer choice through competition, interstate purchase will drive down prices and, possibly, force states to deregulate.

Reduce mandated benefits. Other than consumer overutilization caused by insulation from actual cost, there is nothing that contributes more to the inflation of healthcare costs than state benefit mandates. States should reduce or eliminate mandated benefits to empower consumers to work directly with health insurers to tailor plans to their needs. Consumers won’t be able to do this unless health insurers have flexibility to fulfill the needs of individuals. In a freer health care market, there is no reason to assume that insurers will treat the insured any differently than, say, the grocery store treats its customers by providing many products at prices consumers are willing to pay.

Block grant federal Medicaid funding to give states flexibility to create voucher programs for low-income individuals to purchase their own insurance. An income-based sliding scale voucher program is an effective reform option that states such as Florida have enacted to give low-income individuals more control, fight costly fraud and abuse, and save on considerable administrative costs of running a large bureaucracy.

Eliminate unnecessary scope of practice laws and allow non-physician healthcare professionals to practice to the extent of their education and training. Enhancing the provider pool increases competition without compromising access to quality care. It empowers patients to decide how best to get the care they need.

Reform tort liability laws. Defensive medicine needlessly drives up medical costs and creates an adversarial relationship between doctors and patients.

 

Government Healthcare Takeover

President Obama and his allies in Congress said they wanted to provide quality health care to all Americans at a lower cost. Those are worthy goals. But the law they passed in March 2010 simply doesn’t do those things. It will create a multi-trillion dollar government takeover of healthcare that gives too much control to Washington, DC, and not enough to patients and their doctors, and imposes a top down one size fits all “solution” on all Americans.

UNCONSTITUTIONAL: Americans are faced with an unprecedented action taken by Washington, DC – forcing consumers to purchase a good or service – in this case health insurance. Most Americans are dumbfounded that the government would meddle so cavalierly in something as personal as one’s healthcare decisions.

COST: The law will increase spending by $1.15 trillion and will add as much as $530 billion to the federal deficit over the next 10 years. Cato Institute analysts believe that spending will be $2.7 trillion while adding $823 billion to the deficit over the same period. Medicaid expansion in Montana will cost as much as $155 million by 2019.

MORE TAXES…REALLY?: While the national and state economies are deep in the doldrums of the Great Recession, the law creates or increases 18 separate taxes that will cost $629 billion over the next 10 years. It actually taxes health insurance plans, brand-name prescription drugs, and medical devices. Amazingly, it limits the deductibility of medical expenses.

WRONG REFORM: Intended or not, the new law will insert the government’s tentacles even deeper into the lives of consumers and health care markets to the point that single payer, government-run health care is an inevitability. The law undermines consumer-directed reforms such as Health Savings Accounts, incentivizes employers to drop health insurance benefits, and forces the young and healthy to subsidize care for the old and wealthy. The proponents of the law promised Americans that they’d be able to keep their healthcare plans but independent experts believe that the law will force Americans into government plans.

ROBBING PETER TO PAY PAUL: The law takes $417 billion over 10 years from Medicare’s trust fund. This includes $136 billion in cuts to Medicare Advantage, which allows beneficiaries to receive their coverage through private insurance plans. 10.2 million use Medicare Advantage and Medicare’s chief actuary predicts that 7 million will be forced out and back into traditional Medicare. This represents an obvious disdain for the private market.

PICK POCKETING: The law authorizes the federal government to penalize individuals for not obtaining, and employers for not providing, health insurance coverage. The Congressional Budget Office estimates that from 2014 to 2019 individuals will pay $17 billion in penalties while employers will pay $52 billion.

UNACCOUNTABLE BUREAUCRATS: One of citizens’ biggest fears is unelected bureaucrats making decisions that affect our most fundamental decisions. The government healthcare takeover creates a panel of 15 of these bureaucrats – called the IPAB – to determine what treatments patients can receive.

DUD: Because the law has government written all over it, it should be no surprise that analysts don’t think it will do anything to combat waste, fraud, abuse, and rampant inflation in the system. What the government has excelled at is causing these problems in the first place, and then rushing in to fix the problems it caused, and proceeding to make the problems even worse. The solution is to get the government out of the healthcare market as much as possible and allow people the freedom to make health care decisions based on their circumstances.

 

Issues and Likely Outcomes of Pending U.S. Supreme Court Decision on PPACA

The U.S. Supreme Court (the Court) is about to proffer its decision on various issues relating to the Patient Protection and Affordable Care Act (PPACA). The following Q & A outlines the issues before the Court and likely outcomes:

 

Q: What is the actual name of the case and who is involved?

A: NFIB v. Sebelius. The NFIB stands for the National Federation of Independent Business and is the plaintiff in the case. The NFIB is joined by a couple individual citizens and 26 states through their Attorneys General. Montana’s Attorney General elected not to join the suit. The defendants in the case include U.S. Secretary of Health and Human Services Katherine Sebelius, U.S. Secretary of the Treasurer Timothy Geithner, U.S. Secretary of Labor Hilda Solis, and their respective agencies.

 

Q: When is the Court likely to rule on the case?

A: It could happen at any time. The Court has to clear its docket by June 30. This case is one of the most anticipated in American history. The U.S. Constitution created the Supreme Court for cases such as this to preserve the original intent by “checks and balances” on power. This case gets to the essence of the American Experiment in limited government, states’ rights and individual liberty.

 

Q: There’s talk that the Court may not even be able to rule on the case. Is this true?

A: Yes. The theory is that the Anti-Injunction Act (AIA) may regard the individual mandate to purchase healthcare insurance as a tax. If so, the AIA would call into question whether the Court has the jurisdiction to rule on the case prior to the 2014 effective date for the individual mandate. Legal experts predict that the Justices will unanimously reject application of the AIA to the case.

 

Q: What are the substantive issues before the Court?

A: There are four issues before the Court:

1. As mentioned, whether the Anti-Injunction Act strips the Court of jurisdiction in the case.

2. Whether the new law’s requirement that individual Americans must purchase and maintain federally-approved forms of health insurance starting in 2014 exceeds Congress’ powers under the Commerce and Necessary and Proper Clauses of the U.S. Constitution.

3. Whether the new law’s mandate to the states to expand Medicaid coverage to 133 percent of the federal poverty level exceeds Congress’ authority under the Spending Clause of the U.S. Constitution and thereby violates state sovereignty under the 10th Amendment, which of course stipulates that powers not expressly granted to Congress are reserved to the states.

4. If the Court strikes down one part of the new law – e.g. the individual mandate or the Medicaid expansion – whether any remaining part of the law can be “severed” and implemented.

 

Q: What are the likely outcomes?

A: There are three likely outcomes:

1. The Court upholds the law. This would mean that at least five of the nine members of the Court agree that the individual mandate and Medicaid expansion do not violate the Commerce, Necessary and Proper, or Spending Clauses of the U.S. Constitution. The entire law would go into effect in 2014. Justice Anthony Kennedy will be the swing vote, in particular on the constitutionality of the individual mandate. Justice Kennedy said during oral arguments that the individual mandate “changes the relationship of the government to the individual in a fundamental way.” He also suggested that a federal requirement to buy insurance is “unprecedented” and, therefore, the government has a “heavy burden” of justification.

2. The Court strikes down particular aspects of the law but leaves the remainder intact. There are several variations of this outcome. What would be most likely under this general outcome is the Court strikes the individual mandate and leaves the rest of the law in place. The employer mandate, Medicaid expansion, exchanges, new and increase taxes, and other provisions would move forward. This outcome would leave the Act’s major expenditure provisions in place but remove the primary means of funding those expenditures, requiring further action by Congress. The Court may also choose to sever the Medicaid expansion as a “coercive” use of federal power over the states.

3. The Court rules that the law is unconstitutional and nonseverable. If the individual mandate or the Medicaid expansion is struck down, the Court could argue that the remaining provisions no longer function “in a manner consistent with the intent of Congress.” This decision would also dismantle provisions of the new healthcare law that have already implemented, which would include exchanges and co-ops set up in the states. Congress and the health care industry have indicated they would act quickly in this case to salvage the Act’s most popular and economically sustainable provisions (e.g. children remaining on parents’ policies) pending further legislative actions.

 

Potential Scenarios on the SCOTUS ruling of the PPACA

The United States Supreme Court will rule within days on the constitutionality of president Obama’s Patient Protection and Affordable Care Act (PPACA). We’ve taken a look at what we feel are the three most likely outcome scenarios and attempted to unravel them.

But before we do that, let’s break down the four main issues that were argued before the Court:

1) Whether or not the federal Anti-Injunction Act is applicable to this case – This rarely-invoked Act is from the 19th century and basically states that a tax cannot be challenged in court until it has actually been assessed. Since the individual mandate’s penalties wouldn’t go into effect until 2014, the Supreme Court could not hear challenges to it until taxes are collected in 2015. Virtually all legal scholars and analysts agree it is very unlikely the court will find the Act applicable.

2) Whether the individual mandate is a tax – The individual mandate, also known as the “minimal coverage provision,” is the core of the PPACA. It requires that all individuals purchase health insurance regardless of their health, economic situation, or wishes. The question whether this mandate exceeds the constitutional limits of the “Commerce Clause”, which allows Congress’ regulate commerce between and among the states. While the federal government has routinely regulated terms of commerce, it has never before required it in order that it could regulate it.

3) Severability – If the Supreme Court rules some provisions of the PPACA unconstitutional, will the remaining portions stand, or must the whole Act be scrapped? The individual mandate is what funds the Act’s major provisions. Without out the Act becomes fiscally ruinous. Rather than the Supreme Court creating health care policy themselves, many argue that if they find the mandate unconstitutional they should allow congress to start over. The PPACA does not contain a severability clause, which some see as a simple oversight and others see as a fatal flaw.

4) PPACA’s Medicaid expansion constitutionality – As of now, the PPACA requires states to expand their Medicaid programs to cover more people, or risk losing all federal dollars for Medicaid. While federal dollars routinely come with restrictions, the states’ argument is that a threat of cutting off Medicaid dollars is too forceful, or “coercive” deeming it unconstitutional.

Potential Outcome #1: Court upholds the entire law

The Court concludes the individual mandate is not unconstitutional and the bill stands as written. The timeline for implementing exchanges and other provisions of the law continue as scheduled, pressing states that have not been complying with the law until after the Supreme Court ruling to scramble to get up to speed to meet the deadlines or risk the federal government entering into their states to enforce the law. States will need to comply with all of the law or risk losing all of their Medicaid funding, and ultimately this forces the states to take over the care of all those individuals that qualify. Furthermore, the precedent will be set giving the federal government the authority to order people into enter into a contract and/or purchase a product, and therefore fundamentally changing our system of government.

Potential Outcome #2: Court overturns a portion of the law

This is a very broad grouping of all the possibilities that could occur, but let’s point out the major portions that are most likely being focused on and their implications.

The Court invalidates the individual mandate, but decides to let the remainder of the bill stand. The question then turns to what portions of the bill are considered essential to the mandate. Community rating and guaranteed issued insurance reforms would most likely be removed. Insurers simply could not provide them without the funds the mandate would genererate. Without forcing consumers to buy insurance, the young and the healthy will continue to opt out. Without the removal of the community rating and guaranteed issue reforms, it will mostly likely result in the bankruptcy of many insurance providers, and ultimate death, of the health care industry.

Another portion of the law that could be struck down is the forced expansion of Medicaid. This would have serious impacts on the exchanges, as most of the insurance subsidies provided through them will likely be to newly Medicaid-eligible participants. The question of coercion has never been decided by the Court.

If only the individual mandate and/or the forced expansion of Medicaid are overturned, there are still many provisions remaining, such as the forced state exchanges and the employer mandate, to name just a few. The fate of these provisions will likely be decided by congress and the Executive in 2013.

Potential Outcome #3: Court overturns the entire law

Due to lack of a severability clause, if the Court invalidates the individual mandate, it could strike down the entire bill. It would deem that if indeed the individual mandate were struck down, the remaining provisions would no longer function “in a manner consistent with the intent of Congress”.

Yes, some people will be back where they were before the ACA for a short time, left without insurance, but this opens the floodgates for new, free-market based ideas to be presented to not only create actual permanent change and affordability for Americans, but to change the mindset and practices of insurance providers, as well.

 

For more resources on free-market based health care reform, please see the footnotes attached as well as the following:

• Arduin, Laffer, & Moore Econometrics. (2009). The prognosis for national health insurance: a Montana perspective. Montana Policy Institute. <http://bit.ly/LgEdjh>

• Issue Brief: Pitfalls of the Patient Protection and Affordable Care Act for Montanans. Montana Policy Institute.

• Montana Policy Institute – Free-Market Health Care Resource Page http://www.montanapolicy.org/main/page.php?page_id=37

• Patient Centered Reform Online <http://www.patientcenteredreform.com>