At the AEIdeas blog, Tom Miller finds researchers are reaching conclusions about RomneyCare that their data do not necessarily support, and are claiming ObamaCare will perform similarly, despite major differences between Massachusetts and the nation as a whole.

Arizona Gov. Jan Brewer (R) recently set aside her vociferous opposition to ObamaCare’s costly Medicaid expansion by announcing she will support implementing that expansion in Arizona. A significant factor in her reversal, she claimed, was that if Arizona did not expand its Medicaid program, then some legal immigrants would receive government subsidies while U.S. citizens would get nothing.

Brewer’s analysis of this “immigration glitch,” and her remedy for it, are faulty. Fortunately, she, Arizona’s legislature, and its attorney general have better options for stopping it.

An odd and unforeseen result of the Supreme Court’s decision upholding ObamaCare is that, in certain circumstances, the law will now subsidize legal immigrants but not citizens. What triggers this inequity is a state’s decision to implement an Exchange — not the decision to opt out of the Medicaid expansion. (Even if a state implements both provisions, legal immigrants would still receive more valuable subsidies than citizens.) The good news is that states can therefore prevent this inequity simply by not establishing an Exchange. If Brewer wants to avoid this “immigration glitch,” there is no need to expand Medicaid. She already blocked it when she refused to establish an Exchange.

The bad news is that the Obama administration is trying to take away the power Congress granted states to block those discriminatory subsidies, and the punitive taxes that accompany them. Contrary to both the statute and congressional intent, the IRS has announced it will impose that witch’s brew in all states, even in the 32 that have refused to establish an Exchange.

Oklahoma attorney general Scott Pruitt has filed suit to stop that stunning power grab. If Brewer is serious about stopping the “immigration glitch,” the way to do it is by filing a lawsuit similar to Oklahoma’s, while adding a complaint that the Obama administration’s illegal subsidies also violate the Equal Protection clause.

How “the Immigration Glitch” Emerged

ObamaCare aims to offer some form of tax credit or subsidy to purchase health insurance to all citizens and legal immigrants below 400 percent of the federal poverty level (about $92,000 for a family of four). Generally, people below 138 percent of the poverty level would receive subsidies through their state’s Medicaid program, while citizens and legal immigrants between 100–400 percent of poverty would receive tax credits and/​or subsidies to purchase private health insurance through state-created health insurance “exchanges.”

In a slight departure from those general rules, Congress also made legal immigrants below 100 percent of poverty eligible for those Exchange subsidies. Why? ObamaCare originally would have required states to expand their Medicaid programs to all citizens up to 138 percent of poverty level. But since states have the option of excluding legal immigrants from their Medicaid programs, and could continue to do so under that expansion, Congress made legal immigrants below the poverty level eligible for Exchange subsidies if they live in one of those states. Since ObamaCare supporters expected all states to implement the Medicaid expansion, they reasonably believed all citizens and legal immigrants below 400 percent of poverty would receive some form of tax credit or subsidy.

Then along came Chief Justice of the United States John Roberts.

With six of his colleagues, Roberts voted to declare ObamaCare’s Medicaid mandate unconstitutional. Four of those justices then voted to strike down the entire law on the grounds that the Medicaid mandate was not severable from what remained. But rather than vote with them, Roberts voted with the other four justices—including two who held the Medicaid mandate to be constitutional—to preserve the law and simply make the Medicaid expansion optional for states.

Roberts claimed he was exercising judicial restraint. In reality, he put in place a new law that Congress never would have enacted. ObamaCare still makes the aforementioned legal immigrants eligible for Exchange subsidies, provided their state establishes an Exchange. But under the law as amended by John Roberts, if that state does not expand Medicaid, an inequity appears: some legal immigrants receive Exchange subsidies while otherwise identical citizens, if not already eligible for Medicaid, receive nothing. Given the sensitivity surrounding the law’s treatment of immigrants (remember “YOU LIE”?), there is zero chance such a bill could have passed Congress. So if you want to know whom to thank for this inequity, thank John Roberts. This inequity is one more reason Roberts’ severability analysis was faulty, and the joint dissenters had it right: the Court should have struck down the entire law based on the unconstitutionality of the Medicaid mandate alone.

How States Should Respond

Be that as it may, state officials need to understand what causes the “immigration glitch,” how they can avoid it, and that most of them already have.

• What causes this glitch are the Exchange subsidies, not a state’s failure to expand Medicaid. It is the Exchange subsidies that are available to (some) legal immigrants but not to otherwise-identical citizens. And since Exchange subsidies are available only through state-created Exchanges, it is a state’s decision to create an Exchange that creates this inequity.
• If states want to prevent this inequity, they should do what 32 states have already done and refuse to establish an Exchange. If states don’t create Exchanges, there can be no Exchange subsidies, and thus no inequity. At this point, it appears there are only two states where this inequity might appear: Idaho and Mississippi. Those are the only states that might end up implementing an Exchange but not the Medicaid expansion. They and all other states can avoid this glitch simply by not establishing an Exchange.
• Expanding Medicaid doesn’t really eliminate the inequity because citizens would still receive a less-valuable subsidy than legal immigrants. Legal immigrants would receive subsidies to purchase private insurance, while citizens would get Medicaid coverage, which is notorious for providing inferior access to care. This inequity was present in the original law, and will exist in the 16 or so states that are implementing both an Exchange and the Medicaid expansion.
• This glitch is yet another reason why the Obama administration’s attempt to dispense $500 billion in states that refuse to create Exchanges — half a trillion dollars of subsidies that Congress never authorized — is illegal and wrong. (ObamaCare supporters claim the IRS has the legal authority it needs. To which I say: if you’re so sure, debate me.) Among other evils, the administration is reintroducing this discriminatory provision into the 32 states that have eliminated it. States, employers, and individual taxpayers therefore have one more complaint they can lodge against the administration’s actions in federal court: the unauthorized subsidies the administration is trying to dispense also violate the Equal Protection clause. They are available to legal immigrants but not to otherwise-identical U.S. citizens.

This latest glitch is one more reason why John Roberts’ opinion was ill-considered, why Congress should repeal ObamaCare, and why, until Congress does, states should implement neither an Exchange nor the Medicaid expansion. When a massive new entitlement program unfairly favors one group over another, the proper response is not to enact a second massive new entitlement program. The proper response is to block the first one.

Brewer is correct that it would be unfair for Arizona residents to pay for ObamaCare’s Medicaid expansion in other states, while receiving none of the benefit. (Actually, the inequity is even worse than that. ObamaCare’s Medicaid expansion is entirely deficit-financed. So it is future generations, rather than current Arizona residents, who will pay for it.) The way to stop the “immigration glitch,” and this much larger inequity, is by filing a companion suit to Oklahoma’s. If Arizona expands Medicaid, it will blow a huge opportunity to stop all of ObamaCare’s inequities once and for all.

Idaho Gov. Butch Otter (R), who added Idaho to the multi-state challenge that sought to overturn ObamaCare as unconstitutional, now supports helping the Obama administration implement the law by establishing and funding a health insurance “exchange.” Exchanges are new government bureaucracies that enforce ObamaCare’s many regulations, channel billions in deficit-financed government subsidies to private health insurance companies, and help the IRS penalize individuals and employers who fail to purchase government-approved insurance. So far, some 32 states have refused to establish an Exchange themselves. If Idaho’s legislature authorizes an Exchange, they will make Idaho the only state where a Republican legislature and governor acted together to implement this essential piece of ObamaCare.

One could argue this is a debate Idaho shouldn’t even be having. Establishing an ObamaCare compliant Exchange would violate Idaho state law.

In a letter sent to Idaho legislators today, Goldwater Institute attorney Christina Sandefur explains, “establishing a PPACA state health insurance exchange in Idaho would conflict with the state’s Health Care Freedom Act.” Idaho’s Health Care Freedom Act protects the “right of all persons residing in the state of Idaho in choosing the mode of securing heatlh care services free from the imposition of penalties” including “any civil or criminal fine, tax, salary or wage withholding, surcharge, fee or any other imposed consequence.” Sandefur explains (as I have explained elsewhere), “State exchanges that conform to PPACA are inconsistent with this safeguard because they are the key vehicles for implementing the individual mandate tax,” as well as the penalties ObamaCare levies on employers under the employer mandate. Idaho’s Health Care Freedom Act forbids state officials or state-created non-profits from doing anything that helps to enforce such penalties: “No public official, employee, or agent of the state of Idaho or any of its political subdivisions, shall act to impose, collect, enforce, or effectuate any penalty in the state of Idaho that violates the public policy set forth in [this Act].” As a result, Sandefur writes, “Idaho public officials who operate exchanges would be violating state law,” and “the Attorney General is charged with taking legal action against those who do so.”

Otter himself signed the Health Care Freedom Act into law in 2010, and was the first governor in the nation to do so. The purpose of that Act was to prevent state officials from doing what Otter is now trying to do. “What the Idaho Health Freedom Act says,” Otter boasted at the time, “is that the citizens of our state won’t be subject to another federal mandate or turn over another part of their life to government control.” Yet he is now trying to subject Idaho residents to those mandates, and violating his own law to help the federal government implement ObamaCare. The best spin I can put on this is that Otter is getting some very, very bad advice about the Health Care Freedom Act and ObamaCare’s Exchanges.

The situation in Idaho is a replay of Arizona, which enshrined a similar Health Care Freedom Act in its Constitution. As Arizona officials were wrestling with whether to establish an Exchange, Sandefur and her Goldwater Institute colleagues threatened legal action if Arizona did so. That threat was likely a major factor in Gov. Jan Brewer’s (R) decision to oppose an Exchange.

An oped in today’s Wall Street Journal explains:

How big can a company get with just 50 employees? We’re about to find out.

Thousands of small businesses across the U.S. are desperately looking for a way to escape their own fiscal cliff. That’s because ObamaCare is forcing them to cover their employees’ health care or pay a fine—either of which will cut into profits and stymie future investment and growth…

“Going protean” offers a better strategy for many businesses. Owners of protean companies create a core of strategic employees who manage the big-picture elements of the enterprise—the culture, business model, product mix, vision, strategy, etc. This core then outsources the business tasks to other corporations…

Non-core tasks could include things like accounting, marketing, product development, manufacturing, IT, PR, legal, finance, etc. There is almost nothing that cannot be outsourced…

These new contracts will be a mix of large corporations, small businesses, micro-corporations and even nano-corporations (an individual doing business as a corporation). But to be a protean solution, it must involve a corporation-to-corporation relationship…

In the context of ObamaCare, a small business could go protean by offering current employees contracts for doing their current work as a corporate entity instead of as an employee…

[A]s government continues to impose itself into the marketplace and reduce the freedom of the commercial sector through statist programs like ObamaCare, businesses will have to look for creative solutions to survive. Going protean is only one way, and others will emerge.

Keeping the core company below 50 full-time employees will allow such companies to avoid the employer mandate. But it will also drive up ObamaCare’s cost, because most of the workers in the new corporate entity will be eligible for government subsidies through ObamaCare’s health insurance “exchanges.” This will drive up the cost of ObamaCare wherever those subsidies exist.

My coauthor Jonathan Adler and I have been educating state lawmakers about how ObamaCare allows them to block the law’s employer mandate, and to exempt collectively 15 million taxpayers from its individual mandate. So far, 32 states have exercised those powers, exempting all of their employers and 10 million residents from those punitive taxes. In Mother Jones, MIT economics professor Jonathan Gruber calls our interpretation of the law “screwy…nutty…stupid.” (This issue is currently being litigated in Oklahoma.) 

In this Cato video, I challenge Prof. Gruber (and any other supporter of the law) to a debate on the powers Congress grants states under ObamaCare.

Some of the U.S. Supreme Court’s most significant decisions are those declining to hear a case. Two weeks ago, the Court made such a momentous non-ruling in refusing to hear a lawsuit, Hall v. Sebelius, challenging government policies that deny otherwise eligible retirees their Social Security benefits if they choose not to enroll in Medicare. (I previously wrote about the case, and Cato filed a brief supporting the retirees’ petition for Supreme Court review.)

Despite having paid thousands of dollars each in Social Security and Medicare taxes during their working lives—for which they never sought reimbursement—the five plaintiffs were told by officials at the Social Security Administration and Department of Health and Human Services that they had to forfeit all of their Social Security benefits if they wished to withdraw from (or not enroll in) Medicare. This determination resulted from internal policies that were put in place during the Clinton administration and strengthened by the Bush administration. The plaintiffs sought a judicial ruling that would prohibit SSA and HHS from enforcing these policies, which they believed conflicted with the Social Security and Medicare statutes. A sharply divided U.S Court of Appeals for the D.C. Circuit eventually upheld them. By its decision not to hear the case, the Supreme Court let that controversial ruling stand.

At this point, one might ask why someone would want to give up Medicare. The answer is that some people would prefer to keep their existing (private) health insurance, but that for various regulatory and economic reasons insurance companies are wary of insuring people already covered by Medicare. Talk about the prototypical case of government programs crowding out the private sector!

In any event, the troubling reality of the Supreme Court’s non-ruling is twofold: First, the government now has full authority to force citizens to participate in a financially troubled program (Medicare) that was originally intended to be—and operated for almost three decades as—a wholly voluntary program. If they refuse, SSA and HHS can deny them their Social Security benefits. If they seek to withdraw from Medicare, SSA and HHS can not only deny them future benefits, but force them to repay all benefits received from both programs. Second, the Supreme Court’s unwillingness to address the issue raised here allows federal agencies to bypass Congress with impunity when drafting and implementing their own rules.

The plaintiffs’ lawyer, Kent Masterson Brown, had this to say in a press release following the Supreme Court’s order:

Not only have the Courts allowed these agencies to grant themselves permission to seize a retiree’s Social Security benefits should they opt out of Medicare, but they have allowed those agencies to turn voluntary programs into compulsory ones, giving Seniors no choice whatsoever but to accept the ever more limited health care offered by Medicare. The plaintiffs cannot pay for their own health care—and save the Government and taxpayers money—without forfeiting all of their Social Security benefits. There is nothing in the Social Security statutes that says a retired individual who chooses not to apply for Medicare coverage will be stripped of his or her Social Security benefits.

Martha de Forest, executive director of a group that supported the lawsuit, the Fund for Personal Liberty, also had a response:

Why would the government tie two programs together when they have different payment mechanisms and different start dates? It is about control, nothing more. That is why the government forces retirees to participate in Medicare as a condition of receiving Social Security Retirement benefits.

At base, it’s axiomatic that administrative agencies have no powers not granted to them by Congress and that regulations must be anchored in their operative statute. The rules challenged here failed this standard. Combined with the fiscal irresponsibility of forcing citizens to accept costly benefits during hard economic times, the SSA and HHS rules are an arbitrary power grab. Agency overreach imperils the separation of powers and therefore liberty.

Now that the Supreme Court has failed to counter this unauthorized expansion of federal power, it’s time for Congress to do so by legislation—as Quin Hillyer suggests in his commentary on the case. Richard Epstein has further thoughts on how Hall v. Sebelius illustrates the untrammeled growth of the administrative state.

From the January 7 edition of Health Plan Week:

Ahead of 2014 and to get ready for open enrollment this fall, insurers are gauging their interest in participating in certain markets based partly on how [the U.S. Department of Health and Human Services] writes regulations governing the exchanges set to open on Jan. 1, 2014.

Roy Ramthun, president of Maryland-based HSA Consulting Services, tells HPW that the biggest challenge health insurers face in 2013 is the uncertainty inherent in regulations governing exchanges. “The uncertainty comes on two fronts: (1) state insurance exchanges and (2) rules for qualified coverage and selling insurance [e.g., essential benefits, actuarial value, rating rules, etc.],” he says. “On the exchange front, you have only about 15 states moving forward on developing their own exchanges. For every other state, we are waiting to learn what the federal exchanges will look like. And this all has to be in place for enrollment beginning Oct. 1, 2013. I am not sure what carriers can do to overcome this other than lend their expertise to the development of exchanges while perhaps pushing or hoping for delay of the Jan. 1, 2014, ‘go live’ date.”

For example, Ramthun says, “It is hard to develop insurance products for sale when you don’t have all the details about what can be offered…”

Dan Mendelson, president of consulting firm Avalere Health, LLC in Washington, D.C., tells HPW that the biggest challenge insurers face in 2013 is deploying new, profitable products for use in exchanges. “This is a massive jump ball, and complicated by the fact that plans don’t have a clear actuarial history for the population that will be buying insurance in this way. Two other important challenges will be responding to Medicaid expansions, and increasingly integrating quality into systems to enable pay for performance,” he says.

Peter Hayes, principal at consulting firm Healthcare Solutions in Scarborough, Maine, says diversification is the largest issue for health insurers to tackle in the near term, stressing that new market rules are going to make it tough for traditional lines of business to create acceptable profit margins. “Aetna has already declared that they do not believe their future is selling health insurance coverage in an environment where margins and profits are regulated by an 85% medical loss ratio [MLR]. They believe their revenues and earnings growth will be from the sale of their intellectual and system assets to the ACOs [accountable care organizations] and exchanges and from offshore opportunities. Cigna has expressed similar strategies,” he tells HPW.

This rethinking process may leave some plans on the sidelines for exchanges, Hayes adds.