The conservative health idea that is dragging down Obamacare

After a remarkable run of success, Obamacare has hit some speed bumps lately. From premium hikes to unaffordable deductibles to backtracking insurers, cracks in the law’s foundational health exchanges have sprung into public view. These issues, however, all stem from a basic structural flaw in a key part of the law: it’s too conservative.

These problems are arising because a number of shoppers on Obamacare’s health exchanges aren’t finding much to like. The most affordable plans (called bronze and silver plans) often come with high deductibles that leave consumers on the hook for as much as the first $6,000 of their medical expenses.   For silver plans, the law’s cost-sharing reduction—essentially co-insurance kicked in by the government—eases these deductibles for most exchange consumers. No such subsidy is available for people who can only afford the monthly premiums for a bronze plan.

For many consumers trying to comply with the law’s insurance mandate, these deductibles leave them insured in name only. “The deductible, $3,000 a year, makes it impossible to actually go to the doctor,” one consumer told the New York Times. “We have insurance, but can’t afford to use it.” His family ultimately dropped their insurance plan.

While these kinds of plans cover certain preventive services, they otherwise provide little more than catastrophic coverage. These kinds of catastrophic care plans have long been staples in the conservative vision of health reform, providing insurance for serious and expensive medical episodes, but leave the consumer self-funding virtually everything else. They’ve been part of recent conservative repeal-and-replace proposals, typically coupled with tax credits and health savings accounts.

Catastrophic care insurance is part of what political scientist Jacob Hacker calls conservatives’ “personal responsibility crusade” in his 2006 book, The Great Risk Shift. Conservatives worry that insurance creates moral hazard in the insured, encouraging them to engage in irresponsible behavior when they don’t bear the full cost of that behavior. Force individuals to own more of their risk, conservatives believe, and they will become more judicious healthcare consumers.

Liberals reject this and aim to spread risk faced in the typical course of life across society. But under Obamacare, they also wanted to provide a low-cost option to consumers compelled into the health insurance market by the law’s mandate. They thus included inexpensive bronze plans on the exchanges, while providing cost-sharing incentives for consumers to spring for a more comprehensive silver plan instead.

By providing a menu of options, health reformers hoped to draw in a broad pool of insurance consumers, including the young and healthy. Because insurers can no longer charge more to people with pre-existing conditions, they’ve counted on premiums from relatively healthy people to subsidize the sick.

But many people just aren’t biting. So far only 35 percent of eligible individuals have signed up for plans through the health exchanges. The nudge toward silver plans leaves some shoppers in limbo: they could buy a low-premium bronze plan that provides little actual insurance, or a silver plan that, while providing more coverage and more subsidies, may still be out of reach for their budget.

These unappealing options drive some people who are on the fence about purchasing insurance out of the market. One twenty-nine-year-old told the Times, “The deductibles are ridiculously high. I will never be able to go over the deductible unless something catastrophic happened to me. I’m better off not purchasing that insurance and saving the money in case something bad happens.”

For many, the perceived benefits of buying this kind of insurance are minimal, and the costs of defying the law’s insurance mandate are surprisingly bearable. The penalty for forgoing insurance was the greater of $325 or 1 percent of income last year, which could be far less than the cost of premiums. (This increases to $650 or 2.5 percent of income in 2016.)

The upshot is that many people are still electing not to purchase insurance. This creates a lopsided risk pool among those who are signing up, leaving companies insuring more sick people than they anticipated. Some companies have responded by raising premiums and others are threatening to leave the market altogether. They simply aren’t receiving the right mix of customers to sustain their exchange business.

Policymakers need to be proactive to shore up the health exchanges. Healthcare expert Andrew Sprung proposes simply extending cost-sharing subsidies to bronze plans. This would strengthen the insurance coverage of these plans, making them more appealing to more consumers. We could also redouble outreach efforts to sign up the uninsured and consider tightening the individual mandate further.

Obamacare has been tremendously successful at getting people insured. But its insurance exchanges need to be self-sustaining. Improving the quality and affordability of the insurance options on its exchanges would help this cause immensely. It would encourage more people to sign up, cutting the ranks of the uninsured even more. And it would discard a misguided conservative approach to health reform and embrace true social insurance instead.

Republicans’ desperate labor force lie

The United States is in the midst of one of the longest economic expansions in its history, but you would never know that from listening to the Republican candidates for president.

In the face of steady monthly jobs gains, Republicans have latched on to a different metric to claim that the tumbling unemployment rate is a mirage: the labor force participation rate. This figure — a measure of what percentage of the population is either employed or actively seeking work — has fallen from a high of nearly 70 percent in 2000 to 62.4 percent today.

To the Republican candidates, this is proof that Obamanomics really has been the catastrophe they always believed it to be. But falling labor force participation has little to do with the Great Recession or Obama’s policies. It’s really about preexisting long-term trends, but that hasn’t stopped conservatives from arguing otherwise.

The most patently egregious rhetorical misuse of the LFPR is the notion that 40 percent of Americans aren’t working. This figure has been an outraged staple of Donald Trump’s stump speech for months, and was repeated by Maria Bartiromo at the Fox Business Network debate. But the bulk of this 40 percent are retirees, students, and stay-at-home parents — not the shiftless deadbeats or displaced victims of the Obama economy that conservatives would have you believe.

Certainly, the LFPR has been on a steady decline for many years now. But business cycle factors, such as the lingering effects of the Great Recession, account for very little of this decline. Goldman Sachs attributes only 0.3 percentage points of the decline to cyclical forces. The White House’s Council of Economic Advisers says it’s at most 1 percent, likely made up of the Great Recession’s long-term unemployed giving up and dropping out of the labor force.

So what accounts for the big decline in the LFPR? Most of the decline is simply the natural result of Baby Boomers reaching retirement age and exiting the workforce. The CEA estimates that the aging population accounts for half of the decline in the labor force participation. Another large chunk are greater numbers of young people attending college and graduate school rather than entering the workforce.

It also includes an increasing number of women leaving the workforce to stay home with children. This is a decision that traditionalist conservatives generally applaud, but there should be some cause for concern. After rising for decades, women’s labor force participation rate has started to tick back down, and there’s evidence that escalating childcare costs are squeezing mothers out of the workforce. Providing government assistance for childcare costs and advanced early education would help reverse this trend.

Some of the LFPR decline may also be a result of increases in federal disability rolls. Since the 1980s, the number of individuals receiving Social Security Disability Insurance has grown substantially and in close correlation to the shuttering of the blue-collar economy. As disability standards have loosened, the program has increasingly become a safety net for jobless middle-aged blue-collar workers. And once workers go on disability, they are unlikely to leave the program to rejoin the workforce.

Because most of the decline in LFPR comes from seniors aging out of the labor force, this actually makes the recent jobs numbers look even better. While the old rule of thumb was that the economy needed to add about 150,000 jobs per month just to keep up with population growth, the exodus of retirees out of the job market has changed that. According to White House economic adviser Jason Furman, we now need only about 77,000 new jobs each month to break even. This makes this month’s 271,000 jobs number look even better

Granted, the economic recovery has been steady has fallen short for many Americans, and the wage effects of the recovery have been far too muted for the majority of workers. But we’ve been in an extended period of economic growth for over six years now.

Still, Republicans want to pretend that we are in the midst of an economic downturn, as Sen. Marco Rubio asserted in Tuesday’s debate. But that’s just not the case. Their brazen statistical malpractice only proves it.

Cash instead of Cadillacs

ObamaCare’s Cadillac tax is quickly becoming a 2016 campaign issue. The law imposes a 40 percent excise tax on the most expensive — and generous — health insurance plans offered by employers starting in 2018. The tax aims to control healthcare costs by deterring employers from offering these kinds of plans, which insulate consumers from health costs and therefore drive up spending.

Though conservatives have long railed against it, liberal candidates for president are increasingly joining them in calling for repeal. At the urging of organized labor, Bernie Sanders and now Hillary Clinton now support repealing the tax, a key revenue source for ObamaCare’s coverage provision.

In the premier episode of Vox’s excellent new podcast, “The Weeds,” Sarah Kliff and Ezra Klein question one of the Cadillac Tax’s key justifications. We presume that employers typically allocate resources with a set pool of money to set aside for total employee compensation. This money is then divvied up between wages and in-kind benefits, like health insurance. So when health insurance costs rise, there’s less money available to give workers pay raises.

But policymakers have also assumed that the opposite is true: that if an employer is spending less on benefits, they will direct those savings toward increasing wages. But this is a big assumption, as Klein and Kliff point out. There’s little evidence in research or simple common experience to suggest that this is true. If an employer limits the generosity of its health benefits because of the Cadillac Tax, it might pocket those savings as profits, pay out higher dividends, or redirect these savings into other investments. This would be entirely consistent with an unequal economy where workers are increasingly cut out of a fair share of rising profits.

However, it seems that this analysis largely depends on what types of employers are going to be most affected by the Cadillac Tax. That is, which employers are offering generous health plans that will face a 40 percent excise tax in 2018?

The tax largely appears to affect two different groups of people: (1) highly compensated executives and finance professionals, and (2) middle-class unionized workers. ObamaCare’s proponents pitched the Cadillac Tax as a tax on the first set of people: politically expedient revenue sources in the one percent. For instance, David Axelrod sold the tax as “an excise tax on high-end health care policies like the ones that executives at Goldman Sachs have.”

Few tears would be shed if executives and financiers lose out on uber-generous insurance plans. But the teachers, autoworkers, and other unionized workers in the second group are a much more sympathetic and politically sensitive constituency. Few politicians — particularly Democrats — are eager to impose taxes or raise costs on average middle-class Americans.

Which is why the political bargain at the core of the Cadillac tax is so important. Policymakers have promised these workers that they’ll be compensated for lost benefits with increased wages. So if the Vox team is right that this trade is hardly a guarantee, then that’s a big deal.

But it also seems possible to me that, in the short term at least, these worries are misplaced. The employers that are offering high-cost Cadillac plans to blue-collar and middle-class workers tend to be those with highly unionized workforces. They began offering Cadillac plans in the first place because of pressure from the negotiating power of unions.

So if these plans are jettisoned, workers at these firms are thus also the ones best positioned to ensure that their employers’ savings are actually rebated to them. At the bargaining table, organized labor groups would undoubtedly insist that employers compensate their workers for these reduced benefits through higher wages or other benefits.

During the Vox discussion, Matt Yglesias points out that the compensation structure for public school teachers is sticky and subject to lock-step contractual agreements.  But if teachers’ unions know that the Cadillac tax will be jeopardizing their bargained-for benefits in 2018, then they can (and should) call for renegotiation of these contracts in anticipation to secure replacement salary increases.

Thus, while it might be true that we have no idea if employers generally would pass health insurance savings on to workers through higher wages, it does seem reasonably likely that the employers affected by the current Cadillac tax would do so.

There are caveats to this, of course. The Cadillac Tax is designed to reach more and more insurance plans as health insurance costs rise. By one estimate, it could affect 40 percent of employers by 2028. This would affect far more than just the financial elite and the unionized workforce.

But for its immediate impact in 2018, the Cadillac tax might work out as policymakers have promised. Unions are among the most vociferous opponents of the Cadillac tax, so it stands to reason that their members have the most to lose. But they are also the workers best positioned to ensure that employers hold up their end of the bargain: reduced insurance benefits in exchange for higher pay.

A better way to pay the Earned Income Tax Credit

The Earned Income Tax Credit is our most significant modern anti-poverty federal program. The EITC supports low-income working families with children by topping off annual income during tax season. It’s a fully refundable credit, so families with no or minimal federal tax liability still benefit from the EITC by getting a refund check from the federal government.

The EITC provides as much as $6,000 annually to families with three or more children. It saves 9.4 million people from poverty each year, and is associated with a whole host of positive social outcomes, from improved infant health, to increase academic achievement, to long-term lifetime earnings gains by children in EITC-recipient families.

Because the EITC is a once-per-year income boost, it essentially functions like an annual bonus from the federal government. Though it’s proven highly effective, there might be ways that we could improve upon this “lumpy” structure of the EITC. For instance, we could smooth out payment of a family’s expected EITC across regular biweekly or monthly so that they receive income support year-round.

Wouldn’t a “smooth” EITC be better than a “lumpy” EITC? While the smooth EITC has begun to quietly gain support in policy circles, a prominent group of policy experts has pushed back, arguing that the lumpy EITC provides superior financial and psychic benefits to working families. However, as I explain below, this pushback rings hollow, and the smooth EITC is ultimately a program that we should seriously pursue.

Unlike our current lumpy EITC, a smooth EITC would simply provide a family’s estimated EITC value in advance through regular periodic payments throughout the year. This essentially unlocks a family’s earned tax-credit income, giving them regular access to their benefits rather than limiting access to tax season.

The most prominent plan to turn the EITC into this kind of periodic income subsidy has come from Sen. Marco Rubio. More recently, Oren Cass (former policy director for Mitt Romney’s 2012 presidential campaign) proposed a similar wage subsidy plan to replace the EITC in a policy paper from the Manhattan Institute. The Center for American Progress has proposed a different but related early refund option that would allow families to access part of the EITC to cover unexpected expenses.

There are compelling reasons to convert the EITC into a regularly paid wage subsidy. Smoothing payment out over the course of a year would have a greater positive financial impact on family budgets, economists have found. And for a government program that is explicitly meant to promote work, periodic payment similar to a worker’s paycheck cycle would strengthen the connection between the EITC and work.

Paying the EITC directly to workers throughout the year would also detach the program from our costly and complex tax code. In order to claim the EITC, two-thirds of claimants incur costs by resorting to help from commercial tax preparers. This loss is especially acute among the many families who make too little to otherwise need to file federal income tax returns and only do so for the sake of claiming EITC benefits. For these families, a portion of their EITC is given over to tax prep companies—the cost of retrieving earned benefits that are submerged in our convoluted tax code.

While there’s a strong case for this kind of reform to the EITC, recent work from researchers and policy experts has challenged this position. Defenders of the current form of the EITC make three principal arguments for preserving the status quo EITC: First, they argue that the lump-sum structure of the EITC promotes dignity and pride among its recipients. It’s an acknowledgement and reward for a year’s worth of hard work. And by baking it into a tax refund, we avoid the stigma of year-round welfare subsidization.

Second, where a periodic EITC would promote income smoothing, the lump sum EITC is said to better promote saving. Because it is paid out once a year, the current EITC acts as a de facto forced savings device, accruing over the course of the year and paying out to families during tax season.

Third (and relatedly), the lump sum EITC also protects its recipients from having a positive tax liability (i.e., owing the federal government taxes instead of receiving a refund) and thus may reduce the stress and uncertainty around tax filing for some families.

The pitfalls of these arguments become apparent when analyzing the alternative to a lump sum EITC. Consider a program that gives EITC-eligible families the option to elect to receive all or part of the EITC in periodic installments throughout the year. This option would revive and improve upon the Advance EITC — an IRS program that allowed workers to receive a portion of the EITC in every paycheck.

The Advance EITC was disbanded in 2010 because it had a low take-up rate — only 3 percent of EITC claimants elected to receive advance payments. However, eligible workers had little knowledge of the program. Those who did know about it may have been discouraged by its requirement that workers sign up for the Advance EITC through their jobs, perhaps fearing stigma from supervisors. Others may have worried about changes in income that affect EITC eligibility, understandably hesitant to risk owing the IRS money at the end of the tax year.

Each of these flaws in the original Advance EITC program, however, could be fixed through simple technocratic tweaks. The IRS could reach out directly to EITC eligible households to provide information on a smooth EITC and simplify the process for opting into the program. This would both enhance knowledge and reduce the sense of stigma by decoupling the smooth EITC from one’s place of work.

Moreover, the IRS could adopt a modest safe harbor to guard against overpayment problems. This would tolerate the potential that when individuals choose to receive the smooth EITC, they may receive higher payments than they are entitled to due to income increases over the course of a year. Such a tolerance is not unprecedented, either; we’ve embraced it before with the Advance Child Tax Credit (used in the 2003 stimulus) and the Affordable Care Act’s premium subsidies. Accepting this inefficiency is worthwhile in that it would cushion recipients from shocks at tax time, making them more comfortable to elect to receive the smooth EITC.

Though Advance EITC take-up rate was low, the financial straits of EITC recipients indicate a pressing need for a revamped periodic income subsidy. According to a 2012 study of EITC recipients in Boston and Chicago, nearly 40 percent of EITC refund dollars were spent paying down bills and debt. While nearly 90 percent of the families surveyed used EITC funds to pay off debt, less than 40 percent used the EITC for savings, tucking away about $637 on average, about 15 percent of their total refund.

Families receiving the EITC are simply too cash-strapped for the tax credit to significantly build savings. And given the demand for costly private sector tax refund advances like refund anticipation checks, it seems clear that creating an option for earlier EITC payments would provide relief to many financially-strained Americans.

So while defenders of a lump sum EITC claim it promotes savings, it might actually be doing the opposite: forcing many recipients into short-term debt.   The families that the EITC benefits largely live paycheck to paycheck, or close to it, and their most pressing need is to avoid debt before creating savings. Thus, we could avoid these financial losses and boost the real impact of the EITC by advancing it to families throughout the year.

If the current EITC isn’t actually promoting savings, and if a periodic EITC can be structured to guard against repayment liability, then the current EITC’s defenders are left to depend on a single argument for their case: that a lump-sum, tax code-based EITC better preserves the dignity of its beneficiaries. Professors and authors Laura Tach and Kathryn Edin argue: “The dignity-building nature of [the EITC] is reinforced by the way it is administered, through tax preparation offices. Here, low-wage workers are customers served with a smile, not supplicants seeking a handout.”

Edin and co-authors make this argument more explicitly in a 2012 paper: “At H&R Block and its competitors, one is no longer a ‘recipient’ but a customer. The facilities are pleasant, well lit, and clean. This stands in stark contrast to the often run-down welfare office, the long wait to be seen, and the caseworker who may be more concerned with detecting misuse of funds than with client service.”

Perhaps the early spring ritual of trudging to the local tax preparer binds low-income families to a unifying national slog. Nonetheless, this argument hinges on the assumption that there is a special dignity in private, typically for-profit interactions. That is, claiming a lump sum tax benefit at a tax prep center is a respectable and well-earned benefit, whereas receiving a government check smacks of welfarism.

The problem is that the “dignity” of the ubiquitous private tax prep offices in low-income neighborhoods is all too often a deeply manipulative, predatory kind of faux dignity. In 2011, Mother Jones published an important investigation into how tax prep centers were pushing loan products on EITC claimants and other low-income filers expecting tax refunds. These centers advanced the refunds owed to cash-strapped filers so they wouldn’t have to wait for the IRS — doing so at annualized interest rates climbing over 100 percent.

One tax prep agent explained how he relied on the indignities of the other financial options in low-income communities to help draw in these customers. “At the check-cashing place, they’re talking to someone behind bulletproof glass[.] . . . The welfare building—you can imagine what that’s like. Here, we treat them well, and they want to come back.” Once in the center, customers who were due refunds were then urged to take on high-interest refund loans.

Though banks have largely discontinued financing usurious advances of their customers’ own money, tax prep centers have simply replaced the refund anticipation loan with the only slightly less egregious refund anticipation check. And recently, the tax prep industry was caught lobbying Congress to increase the complexity of the form used to claim the EITC, hoping that the added confusion would drum up business and fees among low-income families.

True, Edin and her co-authors studied EITC recipients utilizing free community tax preparation centers. Maybe these individuals did find an authentic dignity during the EITC claiming process that was unsullied by exploitative money grabbing. But some two-thirds of all EITC claimants rely on commercial tax preparation companies. For these families, some substantial but regrettable part of the dignity that Edin and others praise is the dignity of a fleecing by businesses looking to take a cut of families’ hard-earned benefits.

So the case for a lumpy EITC — that it promotes savings, guards against positive tax liability, and preserves dignity — ultimately falls short. Providing families with the option for a smooth EITC would seem to be eminently sensible policy. But given the disappointment of the Advance EITC, how do we know what a retooled smooth EITC would look like in practice?

Over the past two years, the city of Chicago (backed by the Center for Economic Progress) has been conducting a pilot program that makes half of the EITC available to certain eligible families in quarterly payments spread throughout the year. The smooth EITC pilot proved overwhelming appealing, with nearly all families who were given the option and presented with an explanation of the program electing to sign up.

The Center for Economic Progress recently released its final report analyzing the results of the pilot program, and their findings were encouraging. The participating families gained disposable income and had higher savings rates in comparison to a control group of families receiving the lumpy EITC. This was because families receiving a smooth EITC were able to avoid taking on debt throughout the year. Not surprisingly, the smooth EITC also decreased financial stress and improved mental health.

We should move toward taking these reforms national and adopting a smooth EITC option for eligible families across the country. The EITC is already our most successful anti-poverty effort. Its effect would only be amplified if it were paid out several times per year, providing financial support year-round and saving families from needless debt.

CAPCare: An early liberal bid for universal childcare

The Center for American Progress released a new plan to expand access to childcare and improve affordability for working parents. The proposal centers around a new high-quality child care tax credit that would subsidize the costs of childcare for families earning up to 400 percent of the poverty line.

Modeled after ObamaCare’s health insurance subsidies, CAP’s new tax credit would be an advance tax credit paid directly to providers throughout the year. It would phase out as income rises, offering over $13,000 in childcare subsidies to low-income families, which dwindles to about $2,400 for middle-income families.

The CAP plan is a laudable effort to provide a much-needed boost in the financial support we provide for working parents. Our existing childcare subsidies are deeply inadequate: Child Care Development Block Grant funds (available to low-income families) reach only one out of six eligible families and cover only about half the average cost of childcare. Moreover, our current Child and Dependent Care Tax Credit provides a (non-refundable) maximum subsidy of $1,050 for low-income families — a negligible sum when the average cost of care is rivaling college tuition costs in 31 states.

While CAP’s plan appears effective at increasing financial support for working families, it does less to improve the supply-side constraints in the childcare market. High-quality childcare can be tough to find throughout the country, with parents waiting on lengthy admission lists, and many areas functionally childcare deserts due to a lack of adequate care options.

CAP largely relies on two factors to improve high-quality care supply. First, by making its subsidy scheme available only to highly rated care centers, CAP encourages the development of more high-quality centers. Second, CAP would redirect the annual $5 billion in CCDBG funding to invest in new care centers around the country.

A bolder plan might have remedied our inadequate childcare supply through direct government provision of childcare. We’ve already had government-run childcare for young children during World War II. And we continue to have government-provided care and development for older children via the public education system. Why not boost quality and supply directly by creating public pre-pre-K for young children with working parents?

CAP’s plan is plainly modeled off of the funding and supply scheme of ObamaCare. And maybe the aversion to direct provision comes from ObamaCare, too. Following health reform, liberals are placing increasing faith in competitive marketplaces regulated to ensure quality to provide social goods. Rather than provide the service itself, government organizes the space and standards for private actors to allocate subsidized social goods.

Perhaps this aversion stems from the defeat of a national health insurance public option. But a public option makes a good deal more political and policy sense in childcare than in healthcare. As discussed above, we are already very comfortable with the idea of government bureaucrats (read: teachers) looking after our children, so government-run childcare is hardly a foreign idea. What’s more, childcare doesn’t succumb to any of the adverse selection problems that made a public health insurance option a risky policy endeavor. So there’s little need for liberals to “over-learn” the lesson of the public health insurance option’s demise.

Interestingly, CAP’s plan unapologetically takes sides in the burgeoning home-care vs. daycare debate. When President Obama proposed greater subsidies for childcare in his State of the Union address, the right tried to pick a culture war over the issue, blasting his plan as a “war on homemakers” — an implicit tax on parents who would prefer to drop out of the labor force and raise their children at home.

Now this logic is deeply flawed — the spiraling childcare costs of our status quo poses a massively prohibitive tax on a potential second earner leaving the household to enter the workforce. The burden of free-market childcare is especially acute given that families with young children are more likely to live in or near poverty.

But CAP ups the ante by waging a full-throated defense of non-custodial childcare, arguing that it is developmentally better for children than being cared for by parents or relatives. Childcare programs aren’t just an economic necessity, CAP says, but an “educational necessity” for young children. Custodial care, on the other hand, typically “does not prepare children for school,” and CAP’s subsidy incentives are designed to wean the country off of such care and into high quality care centers.

This is by far the intellectually boldest piece of CAP’s plan, which otherwise amounts to a generous tax credit paid out to families utilizing childcare services. In truth, Congress was already moving us toward an ObamaCare-like system for childcare, encouraging consumer-friendly marketplaces coupled with subsidies and beefed-up quality controls.

It remains to be seen whether enhanced subsidies alone are enough to guarantee access in a market where demand often far outstrips supply.  Nonetheless, CAP’s plan goes far to shore up the value of these subsidies in the face of rapidly rising costs. This is meaningful progress for American families struggling to pay for what has increasingly become a modern economic necessity.  It will be interesting to see if the component parts of this plan make their way into any candidates’ platforms.

King v. Burwell’s shadow constitutional avoidance

It has been nearly two months since the Supreme Court upheld the structure of ObamaCare for the second time in three years. The Court rejected a vision of the law’s insurance subsidies as inducements to compel state action, affirming the availability of these subsidies to insurance consumers nationwide.

It was a resounding victory for the ACA and the Obama administration. Yet there was one curious absence from at least the surface of the Court’s opinion: there was no discussion of the troublesome constitutional implications of the challengers’ interpretation of the law and the need to avoid them.

But a closer view of the majority opinion — and its vulnerabilities raised by Justice Scalia’s dissent — shows that there might be more going on here. Though the Court seemingly avoided avoidance in King, perhaps the coercion issues nonetheless played a role in steering the Court away from the challengers’ interpretation and all of its federalism baggage.

As the challenge to ObamaCare’s subsidies wound its way through the lower courts, I advocated a sort of fail-safe argument for why the Court should endorse nationwide subsidies. This argument drew on the rule against coercing the states and the canon of statutory construction that cautions courts to avoid interpretations of laws that trigger constitutional issues. Putting these two doctrines together, I argued, should lead the Court to reject the challengers’ broadside to the ACA. It was a trump card; a last resort that struck at a potential Achilles’ heel in the challengers’ case.

I began writing about this argument on blogs and then in an amicus brief to the Court with my former professor Abby Moncrieff. Our brief’s argument gained traction at the Supreme Court’s oral arguments, drawing favorable pronouncements from both Justice Kennedy and Justice Sotomayor.

Yet when the opinion dropped, there was nothing at all about coercion or avoidance. Abby came to call avoidance the “argument that wasn’t.” But the more I think about the King opinion, the more I see shades of a more subtle form of avoidance. Ruling for the challengers would have required the Court to grapple with difficult constitutional questions, so the Court steered clear of this legal tangle and affirmed the Obama administration’s implementation of the ACA.

In our brief, Abby and I had argued that (1) Congress is constrained from imposing insurance market death spirals on states that decline to create exchanges, and (2) that this constraint comes from the Tenth Amendment’s anti-coercion principle — that Congress may not pose coercive inducements upon the states. Given the ambiguity of key phrases in the law like “such exchange,” the Court should avoid an interpretation that would threaten states with death spirals, thus affirming the availability of subsidies on all exchanges.

In the section of its opinion analyzing the “broader structure” of the ACA (the focus of my discussion here), a majority of the Supreme Court agreed with Point (1), but not on the grounds proposed in Point (2). Instead, the Court reasoned that the anti-death spiral constraint arose from the statute itself. “[T]he statutory scheme compels us to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid,” Chief Justice Roberts held.

The problem for Roberts and the rest of the majority, however, is that the ACA never explicitly prohibits death spirals — that is, the anti-death spiral constraint does not arise from the plain text of the statute itself.   Just the opposite, in fact: as Justice Scalia points out in dissent, Congress explicitly enacted death spiral inducing regulations in the long-term care market and in the federal territories. “How could the Court say that Congress would never dream of combining guaranteed-issue and community-rating requirements with a narrow individual mandate,” Scalia asks, “when it combined those requirements with no individual mandate in the context of long-term-care insurance?”

Scalia’s point echoes the decision of a panel of the D.C. Circuit Court of Appeals ruling for the ACA’s challengers a year ago. To argue that Congress is still constrained from imposing death spirals on the states, one would seemingly need to look externally from the statute. One beckoning possibility is the Tenth Amendment. As I wrote last July, “states are entitled to special protections in our constitutional order that the territories and long-term care markets emphatically are not. [ ] One of these protections is the [Tenth Amendment’s] prohibition against federal attempts to coerce the states.”

So the majority could have intercepted Scalia’s objection by relying on an anti-death spiral constraint arising from the Tenth Amendment’s rule against coercion on the states. Yet the Court chose not to do so. Instead, the majority insisted on locating an anti-death spiral principle in the ACA itself, despite statutory text to the contrary. It grounded this principle in a different set of federalism considerations. Instead of focusing on top-down federalism — that is, limits on what the federal government can do to the states — the Court emphasized bottom-up federalism: the states’ roles as policy innovators and so-called “laboratories of democracy.”

In the early pages of its opinion, the Court traces the 1990s health reform efforts at the state level in New York, Washington, and Massachusetts. These states all attempted to expand coverage by imposing community rating and guaranteed issue without an individual mandate. All of these states fell far short of universal coverage, while thoroughly destabilizing their individual insurance markets. Only Massachusetts was able to successfully expand coverage and calm its insurance market by ultimately imposing an individual mandate.

In the Court’s understanding, Congress watched the 1990s reform efforts play out and lifted Massachusetts’s successful scheme for national primetime: reform based on community rating and guaranteed issue coupled with an individual mandate. Thus, Massachusetts became the national model for successful health reform.

By adopting this narrative of the legislative process behind the ACA, the Court reads an anti-death spiral principle into the law’s legislative history: If Congress wanted to turn the country into Massachusetts, then of course it wouldn’t put in place the kind of regulatory scheme that failed in New York and Washington.

However, the states-as-laboratories view of the ACA’s legislative history could have a darker spin, too. Just as Congress drew on Massachusetts as its chosen model for health reform, it could have drawn on the discredited reform efforts in New York and Washington to prod states toward establishing their own exchanges. That is, if Congress was such a keen observer of state health policy experiments, what if it had threatened the states with deliberate New York-style insurance market instability if they refused to adopt their own exchanges?

This punitive twist on states-as-laboratories federalism would be completely unprecedented — but it was exactly what the ACA challengers’ interpretation of the law entailed. As I wrote in June, such a reading of the law would “cast Congress in the role of evil scientist, resurrecting the failed experiments of the states to bludgeon its way to getting its chosen policies enacted nationwide.” This type of congressional threat would almost certainly require the Court to revisit its nascent coercion jurisprudence.

To avoid dealing with the coercion issue, the Court had to read the ACA in a broad, purpose-driven way. The Court’s thinking goes something like this: In passing the ACA, Congress’s primary aim was to expand health insurance, so it solely wanted to turn states into Massachusetts. It wouldn’t threaten some with becoming New York for the sake of promoting state-run exchanges (a deeply subsidiary goal of the law). Doing so would undermine the overarching aim of expanding health insurance coverage.

Now this is an eminently reasonable understanding of Congress’s priorities. Indeed, it’s a refreshingly broad-minded counter to the ACA challengers’ myopic hypertextualism.

But it also revives old school purposivist interpretation — a mode of statutory construction traditionally associated with liberal jurisprudence. The Court invoked the relatively barren canon of construction cautioning against negating statutory purposes, relying on New York State Dept. of Social Servs. v. Dublino, a case that has been seldom used since the 1970s, and a canon that inherently requires courts to first identify a statute’s overarching purpose based on its structure and presumed aims.

This is uncommon ground for Chief Justice Roberts and Justice Kennedy to tread. Judicial conservatives rarely rely on the supposed purpose of a statute to guide their decision-making. But in doing so in King, Roberts and Kennedy may have turned the ACA into what legal scholar William Eskridge calls a “super statute.”   Certain significant, high profile pieces of legislation are interpreted by courts with great deference to Congress’s legislative purpose. These statutes aren’t subject to plain meaning limitations, and seem to defy the typical rules of statutory interpretation.

So when Justice Scalia laments that King “changes the usual rules of statutory interpretation for the sake of the Affordable Care Act[,]” he’s not entirely wrong. The question is why the Court went to these lengths and bent some interpretive rules to arrive at its decision.

One plausible reason was that the Court really wanted to avoid delving back into coercion doctrine. At oral arguments, Justice Kennedy seemed persuaded that the challengers’ interpretation of the ACA presented a “serious constitutional problem” under the Court’s coercion holdings. Justice Sotomayor too was troubled by these constitutional implications in the challengers’ reading.

The problem with the Court’s anti-coercion principle, however, is that it opens a giant judicial can of worms. The rule against coercion is rife with line-drawing problems and malleable, poorly defined standards. Just how substantial does a federal inducement have to be to cross the line into coercion on the states? How burdensome does a conditional regulation need to be? The whole enterprise plunges the Court into endless difficulties.

Regardless of any line-drawing problems inherent in the anti-coercion constraint, it seemed crystal clear to me that threatening states with insurance markets wrecked by federal regulation — as ObamaCare’s challengers postulated — would be extremely problematic no matter where one draws the coercion-inducement line.

Rather than reckon with this outcome and revisit a vexing constitutional principle, the Court took a different route to reach the same result, upholding the ACA’s subsidies nationwide. To avoid even touching upon the coercion issue, the Court landed on an expansive reading of the ACA that, if anything, bolstered the law’s standing and reach. And it settled for reasoning with glaring weaknesses, teeing up Justice Scalia’s objections based on the federally induced death spirals in the CLASS Act and the federal territories.

Between the lines then, King might read like an odd sort of avoidance opinion after all in its contortions to avoid passing upon the coercion issues at play. Indeed, perhaps this is a pure from of avoidance: stretching alternative reasoning to avoid discussing or developing a constitutional doctrine at all. (If so, then King is the polar opposite of Chief Justice Roberts’s commerce clause opinion in NFIB v. Sebelius, wherein he fully analyzed the individual mandate’s commerce clause implications before invoking avoidance.)

This might explain some of the compromises and strains apparent in the Court’s opinion. In fact, its concluding language echoes that typically found in constitutional avoidance cases: “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.” (emphasis added)

A ruling for ObamaCare’s challengers would have forced the Court to directly confront the coercion issues embedded in the challengers’ interpretation. The complexities arising from these issues only made it more difficult for the Court to contemplate a ruling for the challengers.

Justice Kennedy said at oral arguments that the constitutional considerations are “in the background of how we interpret this [law].” If coercion added a judicial hurdle — even if only in the background — that kept the Court from ruling for the challengers, then the constitutional avoidance argument did its job in King.

The King is coming

King v. Burwell is imminent.  The resolution to the legal challenge to ObamaCare’s jugular is expected to arrive within a matter of days.  We’ll soon know whether the Supreme Court will allow the anti-universal coverage crusaders to radically expand the federal government’s power to dragoon the states.

The petitioners in King argue that Congress sought to manipulate state behavior in an unprecedented way.  Specifically, the petitioners argue that by passing ObamaCare, Congress posed the following choice to the states: establish an exchange and enjoy a fully functioning universal healthcare scheme, or decline to establish an exchange and endure deliberately imposed federal regulatory havoc on your insurance market.

The latter choice is implicit from the very structure of ObamaCare.  The law’s insurance expansion is based on a system of consumer protections, individual mandates, and government subsidies.  The consumer protections guarantee insurance coverage for the pre-existing sick.  The mandate protects insurance markets from adverse selection by requiring people to buy into insurance risk pools preemptively rather than waiting until falling ill.  And the subsidies allow individuals to afford private health insurance — a necessity to equitably impose a mandate.

The petitioners argue that Congress threatened to unravel this tripodic structure in states that rejected the option to create a health exchange.  Under their theory, such states elected to forego subsidies.  This triggers the affordability exemption to the individual mandate, releasing countless low- and middle-income people from the obligation to purchase insurance.  This in turn would upend individual insurance markets in these states, destabilized by the relative healthy opting out of insurance risk pools.

We know how the story ends in this regulatory environment.  States like New York, New Jersey, and Massachusetts have all tried this same untenable regulatory environment, and they each incurred moribund insurance markets, spiraling costs, and political frenzy as a result.  By trying to legislate against insurance discrimination and medical underwriting without adopting costly subsidies and mandates, these states quickly saw their insurance markets seize up and their health premiums vault beyond the reach of consumers, sending their political leaders scrambling for a quick fix.

The only true fix was found in Massachusetts, where Governor Mitt Romney enacted a system of mandates and subsidies that ultimately became the model for ObamaCare.  This shored up the insurance market while guaranteeing coverage for all.

The King petitioners posit that Congress threatened to impose the dismal fate of past futile efforts of the states on those that decline to create exchanges.  Economic theory and historical practice show that this would wreck state insurance markets, plunging markets into death spirals and launching an insurer exodus.

Such a threat would seem to be plainly at odds with Supreme Court precedent.  Our federalist system prevents the federal government from coercing the states to enact its preferred policies.  Threatening to decimate insurance markets via regulation if the states decline to enact a federal program would seem to be precisely such an illicit threat.

That’s why the Supreme Court ought to avoid this loaded interpretation that the petitioners propose in King in favor of the government’s reasonable, utterly unproblematic reading of the law.  Under the government’s reading, the Affordable Care Act authorized the Department of Health and Human Services to create “such exchange” in any state that elected not to create its own — and that “such exchange” meant an exchange that could pay out insurance subsidies.

At oral arguments in King, at least two justices — Justice Sotomayor and Justice Kennedy — seemed drawn to this reasoning. They worried about the coercive implications of the cramped statutory reading that the petitioners put forth.

And earlier this month, the Court denied cert in another ObamaCare case, signaling that it would not be redefining its coercion jurisprudence this term.  This is good news for the law’s supporters.  For the Court to endorse the petitioners’ position in King, the Court would have to confront coercion head-on and explain how the coercion here is different from that under the NFIB Medicaid expansion.  And the Court can still use coercion in a constitutional avoidance context in King without creating new precedent.

The Supreme Court has long romanticized the idea that the states are laboratories of democracy, testing out policy experiments on a small scale to see which are ready to go national.  Indeed, ObamaCare very much fit this mold, picking up Massachusetts’s successful health reform as the model for national reform.

Entirely novel, however, would be a statutory structure that cast Congress in the role of evil scientist, resurrecting the failed experiments of the states to bludgeon its way to getting its chosen policies enacted nationwide.  Such a tactic would be a cynical perversion on traditional federalist principles.  And ObamaCare supports ought to hope that the Supreme Court doesn’t allow it.

The innovation/inequality false dichotomy

At his campaign kickoff event last week, Sen. Bernie Sanders raised some eyebrows when he connected over-abundant consumer choice to child poverty:

If 99 percent of all the new income goes to the top 1 percent, you could triple it, it wouldn’t matter much to the average middle class person. The whole size of the economy and the GDP doesn’t matter if people continue to work longer hours for low wages and you have 45 million people living in poverty. You can’t just continue growth for the sake of growth in a world in which we are struggling with climate change and all kinds of environmental problems. All right? You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.

Defending the deodorant point as “one of the most substantive of the campaign so far,” Matt Bruenig of Demos smartly framed Sanders’s argument as taking the morally righteous side in the inequality vs. innovation debate: “Whenever someone argues that we should distribute the national income more evenly so as to reduce poverty and inequality (as Sanders does),” Bruenig writes, “the very first thing someone says in response is that doing so will reduce growth and innovation. Sanders is mocking this argument, saying he’d gladly cut poverty and inequality even if it meant a reduction in superficial product innovation.”

To be sure, it’s refreshing to hear a candidate even obliquely push back against this line of argument.  Conservatives reliably play it to defeat a whole host of inequality-cutting social insurance programs, drumming up fears that business will be burdened, growth diminished, and innovation stifled.  It’s good to hear Sanders refuse to let this be the end of the argument, and to assert the moral claims of those being disserved by our economy.

Yet Sanders may be inadvertently giving credence to a false dichotomy.  That’s because, contrary to what conservatives might insist, there is no inherent tradeoff between fighting inequality and promoting economic innovation.  We don’t need to tolerate exorbitant inequality for the sake of protecting economic dynamism.  Nor do we sacrifice entrepreneurial spirit by growing our social safety net.

The truth may be just the opposite, in fact.  By tolerating poverty and deepening inequality, we shackle much of our population with economic insecurity that holds back innovation and ideas.  The lucky ones get social insurance protections — retirement plans, health insurance, family leave — through their employers, making them hesitant to take a chance on jumpstarting a novel idea.  But as I wrote in The Week last August, combating inequality via the public provision of social insurance protections “would provide greater individual economic security, allowing more people to venture out as entrepreneurs and put good ideas into practice[, and] would free individuals to take a chance at a new startup instead of playing it safe at an established firm.”  A bigger safety net, liberating individuals from job-lock and boosting their sense of economic security, would empower more people to act upon their entrepreneurial dreams.

Also at The Week, Jeff Spross surveyed the slowdown in innovation during the last thirty years and concluded that rising inequality was a big culprit.  “Our economy is giving some people lots more time, but little job security or access to knowledge and resources,” Spross wrote. “It’s giving others the security and the resources, but little of the time. [. . .] If we want more innovation and dynamism, then we need to democratize the ability and opportunity to innovate.”  Our widening income gap and the financial strain that its placing on an ever larger share of the population are suffocating our ability to break new economic ground.

And at The Atlantic, Walter Frick cited studies based on food stamps, CHIP, and Medicare showing that the availability of public benefits boosted entepreneurship.  For example, states that expanded their food stamp programs in the early 2000s saw, on average, a 16 percent rise in entrepreneurship.  And most of these entrepreneurs didn’t actually take food stamps, as Frick points out: “Simply knowing that they could fall back on food stamps if their venture failed was enough to make them more likely to take risks.”

“When governments provide citizens with economic security, they embolden them to take more risks,” Frick argues.  “Properly deployed, a robust social safety net encourages more Americans to attempt the high-wire act of entrepreneurship.”

It’s powerful to hear Bernie Sanders take on the false innovation trump-card in the debate over how far we can go in fighting inequality.  But liberals shouldn’t simply accept the zero-sum tradeoff between innovation and egalitarianism that conservatives have contrived.  There’s plenty of reason to believe that reducing inequality — and the policies favored by those (like Sanders) who worry about inequality — will make our economy more just and more dynamic.

Why Michael Cannon is wrong about coercion in King v. Burwell

Michael Cannon of the Cato Institute has a thoroughly unconvincing rebuttal to those of us who have pointed out that his own legal gloss on the Affordable Care Act might be unconstitutionally coercive on the states. Cannon’s core error is that he repeatedly ignores the fundamental fact that health insurance markets aren’t like other markets because they are prone to adverse selection problems.

Remember, Cannon helped spearhead the legal challenge that became King v. Burwell, premised on the theory that Congress made subsidies available exclusively to states that created their own exchanges. I have argued (as have others) that such a tactic by Congress might be unconstitutionally coercive because it would threaten the states with insurance market death spirals if they refuse to comply. In a battle of statutory interpretations, the Court thus cannot sustain Cannon’s.

Cannon argues that this isn’t coercive at all under current Supreme Court precedent. His mistake, however, is brushing past the full scale of the consequences that follow if a state declines to create an exchange under King. Cannon argues that killing the individual mandate by cutting off subsidies would just impose additional costs on state residents. But this ignores the fact that on health insurance markets, these costs aren’t stagnant. Rather, these costs are dynamic and self-perpetuating until markets seize up altogether. Health care is different, and that difference makes the “choice” in King unusually coercive.

Cannon raises three separate points pushing back against the coercion argument:

Cannon #1: “The ACA’s Exchange provisions don’t penalize states. They let states make tradeoffs between taxes, jobs, and insurance coverage.”

Response: Whether Congress penalizes the states or their residents should be irrelevant under the Constitution’s federalism protections. And the tradeoff that states would have to make to decline to create an exchange under King is significantly more burdensome than Cannon admits.

“If a state fails to establish an Exchange, the ACA withholds subsidies from a state’s residents, not the state,” Cannon argues. This is overstated for two reasons. First, withholding subsidies under King not only has individual effects, but debilitating statewide effects, too. Because withholding subsidies triggers the individual mandate’s affordability exception for most consumers, state insurance markets (still obligated to comply with the ACA’s guaranteed-issue and community-rating requirements) will plunge into death spirals. That’s very much a penalty on a state as a whole, rather than just on its citizens.

Cannon goes to great lengths to contort the death spiral phenomenon into a mere imposition of costs.  Rather than call it a death spiral, he says that “withholding subsidies in uncooperative states would make the costs of the ACA’s community-rating price controls transparent to consumers, and those costs might have the effect of coercing states into implementing Exchanges.”

This is a deeply understated and incomplete formulation of what’s coercive about King. Cannon’s sleight of hand is treating the “costs” in an uncooperative state’s insurance market as if they were the costs typical of any other market. But this just isn’t the case. Health insurance markets are fundamentally different, and are singularly prone to adverse selection problems. The individual mandate is the lynchpin that secures stability in insurance markets with consumer-protecting regulations like guaranteed-issue and community rating. Removing this lynchpin doesn’t just unveil the ACA’s “true cost” (i.e., it’s cost without cross-subsidization from the young and healthy). Rather, it unleashes uncontrollable cost increases that culminate in a market collapse. That’s what would coerce the states, for the consequences of withholding subsidies impact far more than just the individuals that would have otherwise been eligible for them.

It’s also hardly clear that, for purposes of federalism constraints on congressional power, the distinction between states as sovereigns and their residents really matters. Certainly, New York v. United States suggests that it matters some. But New York itself reminds us that the underlying rationale of these federalism constraints is to protect individuals, not states. As the Court put it, “federalism secures to citizens the liberties that derive from the diffusion of sovereign power.” Drawing a bright-line and limiting coercion to direct federal salvos against state governments’ budgets would be an artificial formality that makes little sense given the whole raison d’etre of the federalism enterprise.

Such a formality would also be too easily circumvented for the Court to accept. In fact, at oral arguments in King, Justice Kennedy signaled that this very distinction matters less than Cannon thinks to the coercion inquiry. Kennedy said that the court “wouldn’t allow” Congress to impose a thirty-five mile per hour speed limit on states that don’t go along with a federal command (at 19:3). As in King, such a restriction wouldn’t impose a direct penalty on state budgets, but would instead negatively impact its residents directly. But such a negative impact would still be coercive, according to Justice Kennedy. That means that a regulation can still be coercive even if it doesn’t directly affect state budgets.

Moreover, if King contemplates the states making well-considered “tradeoffs” under the ACA, it’s hardly clear that they have been able to do so, which gets to Cannon’s second point:

Cannon #2: “Roughly half of states appear to consider those costs [of declining to create an exchange] tolerable.”

Response: These states haven’t reckoned with the full costs of declining to create an exchange under King. And just because a state chooses to accept the federal government’s punishment doesn’t make it constitutionally acceptable for Congress to pose a coercive choice in the first place.

This state acquiescence argument has appeared frequently since oral arguments. How could the exchange choice be coercive, its proponents ask, if so many states have refused to create exchanges?

The problem, as I’ve written, is that not a single state has yet embraced the full range of consequences of refusing to create an exchange under King. No state has publicly indicated that it has knowingly and voluntarily accepted an insurance death spiral as a consequence of this choice. States may be willing to take ownership of losing subsidies, and are happy to trumpet freedom from the individual mandate. Some even now claim, post hoc, that they knew they’d lose subsidies at the time they declined to create an exchange. But so far, not a single state has acknowledged the deeply destabilizing impact on their insurance markets that follows from that choice under King.

But suppose a state did claim to accept this dire consequence. Would it make a legal difference to the coercion inquiry if states (even many states) decided to take the federal government’s punishment? What if before NFIB, states had decided to end their Medicaid programs in order to avoid Obamacare’s expansion of that program? Would the threatened loss of all Medicaid funding still be coercive? In fact, Texas — one of the country’s biggest potential markets for expanded Medicaid — was making noise about abandoning Medicaid altogether to avoid the mandatory expansion even before NFIB. I doubt that the Court would permit Congress to impose an otherwise coercive choice on the states just because it wasn’t perfectly airtight coercion.

Both in theory and in practice, the number of states declining to create exchanges should have little bearing on the degree of coercion in King. If anything, the fact that so many states have made this choice in the face of the draconian implications of King’s version of the ACA points toward other doctrines that cast doubt on the petitioners’ interpretation. Maybe the thirty-six states that declined exchanges didn’t have clear notice of the consequences of such a choice, in which case the petitioners’ interpretation violates the Pennhurst doctrine. Or maybe the states simply didn’t see the elephantine implications of the petitioners’ version of the ACA because Congress hid it in a statutory mouse-hole — another legislative no-no that Justice Sotomayor raised in oral arguments (at 23:5). However you cut it, the Fantasy Affordable Care Act conjured by the King petitioners ultimately collapses in on itself.

Cannon #3: “This ‘deal’ is comparable to what the Court allowed in NFIB v. Sebelius.”

Response: The “deal” here in unlike NFIB in that it threatens grave economic harm on the states that extends beyond depriving the program’s would-be beneficiaries of insurance.

Cannon draws an analogy between the Medicaid expansion remedy in NFIB and how the ACA would operate under King: “In NFIB, the Court allowed states collectively to turn down Medicaid subsidies for as many as 16 million poor people. The Exchange provisions permit states to do the same for 16 million higher-income residents.”

Again, the coercion here is about far more than just subsidies. The yes-or-no Medicaid expansion decision didn’t threaten broader economic harm on state insurance markets. There, the consequences of state refusal were borne entirely by those eligible for expanded Medicaid.

The consequences of the choice in King aren’t nearly so cabined. Under the petitioners’ reasoning, the choice of whether or not to accept subsidies has huge economic consequences for the sustainability of state insurance markets as a whole. As I’ve explained above, foregoing these subsidies doesn’t just mean passing up on help for “16 million higher-income residents”—it also means an insurance market collapse. If a state wants a functioning health insurance market, it’s very hard to turn down subsidies. That wasn’t a consequence states had to consider three years ago under NFIB’s Medicaid expansion holding.

*          *          *

Cannon’s rejection of the coercion argument thus doesn’t hold water. The threat levied against the states under his reading of the ACA is significantly graver than he’s willing to admit — and it’s grave precisely because of the unique problems endemic to health insurance markets.

There’s a telling moment in Cannon’s article, however. As a result of a state’s decision not to create an exchange, Cannon argues, “residents would then see lower taxes, more jobs, more hours, higher incomes, and more flexible health benefits.”

The supposed economic gains are sheer speculation by Cannon, and they are highly doubtful speculation at that given how frantically business has sought to stave off the consequences of a ruling in favor of the petitioners in King. But Cannon tips his hand with the last “benefit”: “more flexible health benefits.”

Cannon presumably envisions Red states increasing reliance on a conservative favorite: health savings accounts — personal accounts where an individual funds much of his or her own medical costs rather than counting on insurance.

This is a useful reminder that the conservative vendetta against health reform is about more than just health exchanges, government subsidies, the individual mandate, or Barack Obama. At core, it’s about rejecting the basic risk-pooling function of insurance in favor of a go-it-alone, bootstraps approach. It’s part of what Jacob Hacker calls the “personal responsibility crusade,” taking us from a society that pitches in together to protect one another and transforming us into one where you’re on your own instead. That, at heart, is what’s at stake in King v. Burwell and the continued fight for universal health reform.

Scott Pruitt’s King v. Burwell own-goal

Scott Pruitt, the attorney general of Oklahoma, published a response to Justice Kennedy in the Wall Street Journal following King v. Burwell oral arguments this week.  Pruitt tried to counter Kennedy’s notion that the plaintiffs’ version of the Affordable Care Act would be unconstitutionally coercive on the states — but he unwittingly proved Kennedy’s point entirely.

Pruitt dismissed Kennedy’s federalism concerns as patronizing coddling of the states.  “The states are not children that the federal government must paternalistically ‘protect’ from the consequences of their choices by rewriting statutes,” Pruitt maintained.  “In our constitutional system, states are free to make decisions and bear the political consequences, good or bad, of those choices.”

Fair enough.  But does Pruitt grasp the full consequences of a decision not to create an exchange if the ACA works as the King plaintiffs claim?  Pruitt thinks Oklahoma made the following choice: “Declining to establish a state exchange allowed Oklahoma to voice its strong political opposition to the Affordable Care Act as a whole, as well as to make a statement that it wanted neither the large-employer mandate nor the individual mandate to have effect within its borders. That was the trade-off. Oklahoma declined the premium tax credits, but freed itself of those mandates, and that was a choice the state was happy to make.”

Pruitt’s calculus leaves out the biggest cost on the scale: near-guaranteed insurance market death spirals, brought on by a market bound by the ACA’s guaranteed-issue and community-rating regulations, but freed from its individual mandate.  He leaves this out of his column for either of two reasons: he doesn’t know about it, or he knows the political fallout from trying to defend that impossible “choice.”

If he doesn’t realize the devastating implications of the plaintiffs’ theory for his state’s insurance industry, then Oklahoma’s decision wasn’t quite so clear-minded and informed, after all.  This isn’t surprising.  Though Pruitt now claims Oklahoma understood that it would lose out on subsidies, there’s no evidence that any state considered the prospect that it would lose insurance subsidies by declining to create an exchange — let alone that losing those subsidies would send its insurance market into a tailspin.

But if Oklahoma didn’t know these dire consequences, this runs right into another constitutional doctrine that cuts against the plaintiffs’ argument in King: the Pennhurst doctrine.  The Constitution requires that the states have clear notice of the terms of federal conditional spending grants.  Because states didn’t have sufficient notice of the consequences of declining to create an exchange, the Court should avoid an interpretation of the law that unconstitutionally imposes draconian consequences without providing the states with notice.

But perhaps Pruitt and Oklahoma do understand these consequences.  If so, omitting prospective market death spirals from his response to Justice Kennedy is telling, for it all but concedes that accepting such grave devastation to Oklahoma’s insurance industry would be impossible to defend.  Imagine a political figure having to explain to her state’s citizens that she induced complete dysfunction in the insurance industry and jeopardized the stability of their health insurance in order to defy President Obama.

Perhaps Pruitt can make a plausible case that missing out on millions of dollars in federal subsidies is worth it to escape the individual and employer mandates.  But there’s no tenable way to justify accepting the resultant economic carnage that would occur if a state refused to create an exchange under the petitioners’ argument.  Especially with healthcare and business stakeholders pleading with Red states to comply with Obamacare rather than tempt market chaos.  (Remember when the ACA was supposed to be an economic killer?)

So Pruitt’s response to Justice Kennedy only serves to illustrate Kennedy’s very point.  If one reckons with the full consequences of the plaintiffs’ version of the law, the consequences of snubbing the federal government are far too draconian to seriously entertain.  By omitting the death spiral from his cost-benefit calculus for Oklahoma, Pruitt’s silence admits what the Supreme Court is catching on to: the plaintiffs’ version of the law is too coercive to embrace.