Halbig’s hellscape

I’ve written (several times) about the Achilles’ heel in the subsidies-as-incentives theory of Obamacare – the cornerstone of the Halbig argument. In short, eliminating subsidies while retaining the ban on community rating and pre-existing condition exclusions will lead to insurance death spirals on Red State individual markets. This is because without subsidies, many more Americans would be exempt from the individual mandate on affordability grounds. They could then wait until becoming sick to purchase insurance, and insurers would be legally obligated to accept them.

The Kaiser Family Foundation crunches the numbers and figures out exactly how many more Americans would be exempt from the individual mandate if Halbig were the law of the land:

With subsidies available, less than 3% of uninsured people eligible for subsidies in the 36 federal marketplace states would be exempt. However, if the Halbig case prevails and the subsidies are invalidated in federal marketplace states, we estimate that 8.1 million (or 83%) of those formerly subsidy-eligible uninsured people would end up being exempt from the individual mandate. With the subsidies unavailable and the individual mandate rendered partially ineffective, it might be difficult to attract healthy people into the individual market and premiums could rise significantly in these states. The result could be what is commonly called a “death spiral,” as healthy people exit the market and premiums rise even more.

That’s a huge number. Of course, this would only be the first wave of Halbig‘s effects. As the healthiest people drop out of insurance pools, insurance premiums would rise further, making insurance unaffordable for even more people.

The legal import of this dynamic cannot go ignored. A full reading of Halbig means that Congress threatened states with a devastated insurance market if they didn’t create health exchanges. Such behavior can’t be constitutional — so the Halbig reading of the law cannot be right.

“Such” a mess

Wow. This morning was a doozy for ObamaCare, as two federal appellate courts issued opposite rulings on the validity of the law’s crucial insurance subsidies. Plaintiffs in each of these cases challenge whether the language of the Affordable Care Act gives the IRS authority to give subsidies to all Americans or to only those living in the 14 states that elected to create their own health exchanges. (I have previewed the D.C. Circuit iteration of this lawsuit previously: I, II, and III.)

How did the two courts reach different conclusions? After a quick read through of the two opinions, it looks like the divergence comes down to the meaning of the word “such.” Really.

First, consider the key statutory sections of the law at play:

  • Section 1311 of the law directs states to create health exchanges.
  • If states fail to do so, the law directs the federal government (through the Department of Health and Human Services) to “establish and operate such Exchange within the State.”
  • Section 36B gives subsidies to those who enroll in plans “through an Exchange established by the State under section 1311.”
  • But the law also defines the term “Exchange” as “an American Health Benefit Exchange established under [section 1311 of the ACA]” — the section that directs states to create exchanges.

How did the courts reconcile this mess? First, let’s start with the D.C. Circuit case, Halbig v. Burwell. The court there determined that the statute requires three elements to receive subsidies: “(1) an Exchange (2) established by the State (3) under section 1311.” “[F]ederal Exchanges satisfy only two: they are Exchanges established under section 1311. Nothing in section 1321 deems federally-established Exchanges to be ‘Exchange[s] established by the State.'”

It’s the court’s second element that dictates its resultant decision against the government and against broad subsidy availability. Does “such exchange” mean that an HHS-created exchange is (for statutory purposes) an “exchange established by the state”?

The Fourth Circuit Court of Appeals in King v. Burwell determined that it did. “Given that Congress defined ‘Exchange’ as an Exchange established by the state, it makes sense to read § 1321(c)’s directive that HHS establish ‘such Exchange’ to mean that the federal government acts on behalf of the state when it establishes its own Exchange.”

In other words, the Fourth Circuit thinks that the D.C. Circuit parsed the statute too finely. By authorizing HHS to create an exchange under Section 1311, the law lets the federal government fill in for the state. “Such” encompasses more than just a 1311 exchange — it means a 1311 exchange established by a state.

That’s the threshold disagreement here. And it’s a really, really important disagreement, for it determines whether health care reform will function in most of the country. I think the government has the better of the argument for reasons beyond the basic arguments over statutory text, which is frankly a mess to make sense of. But the consequences of that mess, to paraphrase Vice President Biden, are a big f***ing deal.

The submerged state common denominator

Sens. Kirsten Gillibrand (D-New York) and Rand Paul (R-Kentucky) have (improbably) teamed up to sponsor legislation that would expand the tax credit for child care. The bill would double the current child care tax credit from $3,000 to $6,000.

It’s a laudable legislative endeavor. As Gillibrand notes, the tax credit has only increased $600 since its 1981 inception, despite child care costs rising above the rate of inflation and consuming a growing share of working families’ incomes. The growing cost of childcare has not only strained family budgets, but may have begun nudging women out of the labor force.

The bill would take other worthy steps, like subsidizing employers to provide on-site childcare and aiding them in locating quality nearby childcare, along with encouraging more trained professionals to work in childcare. But the heart of the bill is the expanded tax credit. Importantly, this tax credit will be fully refundable, which provides full relief to low-income families who would already face minimal tax liability.

Paul’s support for the legislation is more than just a novelty, however. It is a convergence of the two parties on expanding what political scientist Suzanne Mettler calls the submerged state.

In her 2011 book of the same name, Mettler explains that the submerged state is the set of tax code subsidies that we’ve enacted to provide relief to working parents or to encourage home ownership. We’ve increasingly shifted our social welfare state toward a set of targeted carve-outs from tax liability, Mettler says, in ways that are often so subtle that beneficiaries don’t even realize they’ve received government aid.

Our polarized politics have spurred the proliferation of the submerged state. “In recent decades of conservative dominance and political polarization, the submerged state [. . .] became not a last resort but the template of choice for new policy initiatives,” Mettler writes. Targeted tax credits further conservative goals of reducing tax burdens generally. They also increasingly appealed to liberals as a way to provide relief to low-income and working-class Americans. During the ascendancy of conservatives during the Reagan era of the 1980s, liberals “increasingly acquiesced and supported policies such as tax expenditures because, to quote one member of Congress, they became ‘the only game in town,'” Mettler writes.

This interest convergence made submerged state tax credits something of a political least-common denominator in a polarized environment. It was a policy reform that conservatives and liberals could each support for ideological reasons, making them easier to muster through Congress.

We see this driving the Gillibrand-Paul alliance today. The traditional liberal ideal might be a universal childcare system of the type that Emily Badger described last month in the Washington Post: direct government provision of childcare centers across the country — a sort of public option for daycare — that we once had during World War II, nearly had again but for Richard Nixon, and would be unimaginable today.

But the pragmatic liberalism that developed during the 1980s (largely out of desperation) and has flourished during the Obama administration now embraces tax subsidies that allow Americans to better afford the services that the private market offers. This allows room for bipartisan agreement, particularly on relatively low-salience issues like childcare subsidies.

But joining conservatives in expanding the submerged state comes with distinct costs for liberals. Mettler describes how submerged state policymaking undermines democratic accountability, as taxpayers and subsidy beneficiaries barely realize that they’ve gained from public subsidies. This also poses asymmetric political harm for liberals, for when they propose bolder expansions of government assistance, few constituents realize that they have likely already benefited from tax subsidies. As Mettler notes, it’s the “keep your government hands off my Medicare” problem.

Expanding the subsidy we give to parents for childcare is a worthy policy goal. But liberals should nonetheless be wary of relying on submerged, low-visibility tax credits to provide relief to Americans in need. Admirable though the sentiment may be, subsidizing through tax credits undermines larger progressive goals of mobilizing government to alleviate the pressures on vulnerable Americans.

The inequality of our employer-provided welfare state

Over at The Week, I have an article on the unequal access to social insurance when we rely on employers to provide these programs as fringe benefits:

[L]eaving social insurance to the market . . . layers social insurance inequality on top of rising income inequality. Liberals want to alleviate this by giving all Americans access to the kinds of social insurance benefits that the highest earners enjoy now through their jobs. [. . .] In response to the liberal impulse to combat social insurance inequality, conservatives dwell on the potential disruptions to existing private contracts that might result from expanded access.

The proliferation of social insurance benefits among high earners and flush companies is telling. It’s a market signal that basic social insurance benefits like paid sick leave or paid maternity leave are life-improving benefits that workers are willing to pay for – whether through foregone salary or taxation.

Liberal policymakers ought to loosen the grip that employers have as exclusive providers of these social insurance programs just as they did during healthcare reform. A just society requires that these aspects of the good life be made available to all Americans regardless of earning power or employer clout.

Note that this does not require tearing up contracts or abolishing employer-provided fringe benefits. It only requires crafting public alternatives that supplement the employer-provided regime.

But the idea of an employer-provided welfare state and its corresponding inequities offers a powerful framing for liberal politicians and policy minds. Access-improving reforms to the welfare state immediately run into the conservative charge that they are socialist or would turn America into a coddled Nordic state. But liberals can point at the generous benefits offered by the Facebooks and Googles of the Fortune 500 and say, “Hey, the market has spoken. These benefits are goods that more people ought to have access to.” It’s not about giving low-income Americans what Sweden has. It’s about giving them what Google has.