I think Greg Sargent’s post makes a good argument that the Democratic Party was not in agreement about how subsidies could be used to encourage state exchanges. The first faction thought subsidies should be offered to both the state and federal exchanges but it is not clear how this plan would encourage states to set up exchanges or how a federal exchange was constitutional. The question whether a federal exchange was constitutional was key part of Senator Ensign’s question to Senator Baucus. Without state exchanges all of the political and budgetary risk depends on a successful federal exchange roll-out.

The second faction thought that subsidies should only be offered in conjunction with state exchanges. This resolves the constitutionality question. Although there may be some roll-out problems they expected that most of the states would successfully implement the exchanges. The interesting quirk in the Senate finance bill was that they did not plan to set up a federal exchange but expected that they could delegate the work to a nonprofit. Their plan expected the federal government would take the lead in setting up  “an exchange for any state that refused to build one” but it would  “appoint some nonprofit entity to actually run the darned thing afterward.” This arms length approach to running an exchange for a state looks like it skirts the constitutionality question.

In hindsight I think the first faction did not care whether exchanges were constitutional or worked and that is why their wording did not end up in the merged bill. The second faction looks a little more pragmatic about having a plan that encouraged states to set up exchanges. They felt that the success of the Affordable Care Act probably depended on a majority of the states successfully implementing exchanges and a little “cooperative federalism” bribery with subsidies was necessary. Since their wording was likely to be constitutional and encourage states to set up exchanges, it is logical to see why the merged bill was very similar to that used on the Senate Finance bill.

Glenn Reynolds has interesting post over at the Instapundit stating that “Senate Hearing: Tax Credits are available for State Exchanges Only. Senator Baucus explains how The Affordable Care Act sets conditions where Tax Credits are available for State Exchanges Only.“. I watched the video several times and did not hear where tax credits were available for state exchanges only. That part was muddled. Senator Baucus did make a strong argument that the Affordable Care Act as a form of “cooperative federalism” in which states agree to rewrite state laws to comply with ACA recommendations and implement health insurance exchanges in exchange for tax credits. If he wittingly failed to mention that citizens would get tax credits from federal exchanges then he was deliberately negotiating in bad faith. Then it struck me. For states that refused to set up health insurance exchanges you would have to describe them as unwilling participants. What did these states get in return for rewriting laws and generally given up their prerogative to write health care laws? Do we still have “cooperative federalism” if 34 states are unwilling to cooperate? Do we have “cooperative federalism” if the states who did cooperate get nothing in return for their efforts? The states who opted out thought that they had gotten out of the individual and employer mandate by not establishing health insurance exchanges. Instead they got a deal with the government that looks like it has the same legal standing as a shotgun wedding.

I was chuckling my way through Nicholas Bagley’s article, Halbig said it was applying the law as written. Don’t believe it, when I realized that I needed to refresh my memory on the grand bargain offered by the Affordable Care Act supporters. There is rich irony in hearing Mr. Bagley allege there was a consensus on providing subsidies in federal exchanges when at the same time the Speaker of the House was saying “we have to pass the bill so that you can find out what is in it”. The Speaker of the House does not know what is in the bill except in vague terms. I doubt she cared how subsidies were supposed to work. Then we get to the question that if postponing a large part of the Affordable Care Act is a pretty good indicator that the supporters were particularly bad at writing this law then why should we assume their intentions concerning subsidies are different than what was written in the law? The overwhelming body of evidence says they did not know what they were doing when they wrote the bill and no one checked the work. If there was a consensus then it was to write the law in the vaguest of terms so that they could do what ever they wanted if a problem arose. It took several years before problems arose and someone sued. Instead of working with Congress to fix the problems they resorted to fixing the problems via administrative rulings. Although it is difficult to discern Congress’s intention with a law so poorly written, I think it is safe to say that they have been making it up as they went along.

My recollections of the intent of the subsidies differ from Mr. Bagley. When the law was passed I remember the supporters like Mr. Gruber were constantly reminding reluctant states that the subsidies were only being offered to people who purchased their health insurance from state exchanges. They argued that the states better get busy setting up their exchanges if they want their citizens to get that subsidy. This subsidy argument magically disappeared when major employers figured out they could get out of the hated employer mandate penalties if states opted for the federal exchange route. If a state did not set up an exchange then subsidies would not be available. If subsidies were not available then the law says that employers would not be penalized. Was I imagining this? Fortunately I did not have to go far to clear up this subject.

In the Washington Post article, Why the DC Circuit’s interpretation of the ACA in Halbig v. Burwell is far from “absurd”, Mr. Somin lays out the grand bargain like this.

Under the DC Circuit ruling, a state’s residents can only get ACA tax credits for purchasing health insurance if their state decides to establish and operate an insurance exchange. This creates a strong incentive for state governments to create such exchanges, thereby participating in the administration of Obamacare. If they do as the federal government wants, their residents get millions of dollars in tax credits, and their insurance companies and health care providers get lots of new business. By contrast, states would have far less incentive to create their own exchanges if they can rely on the federal government to do all the administrative heavy lifting without imperiling their residents’ eligibility for federal tax credits.

The unanswered question was the impact of state exchanges on the employer mandate. I found the answer to that question in the Forbes article, Halbig v. Burwell Would Free More Than 57 Million Americans From The ACA’s Individual & Employer Mandates, in which Mr. Cannon argues that a victory for the Halbig plaintiffs would free more than 8.3 million residents from the individual mandate and 250,000 firms and 57 million employees from the employer mandate. Wow, this is better than I thought! We get rid of the two most hated parts of the Affordable Care Act with one ruling. As a person who may find himself faced with an individual mandate penalty in 2015 I really like the Halbig v. Burwell decision. This is Christmas in July!

If most of the country hates the individual and employer mandates and the court has an easy, legal way to give the people what they want, what is the court to do? Here are the alternatives I see for the court.

• The Whac-A-Mole Strategy
  This is the current strategy used by the court. Make narrow rulings and hope Congress or the Administration will fix the big problems. In this strategy the court overturns the Halbig v. Burwell decision and lets the case get appealed to the Supreme court. The problem with this strategy is that it is heavily dependent on the Administration fixing the broader problems with the hated individual and employer mandates via administrative rulings. History has shown that setting rules by edict are likely to cause more problems then they solve. For such an unpopular law this strategy practically guarantees that the court will continue to be flooded with cases challenging the constitutionality of administrative laws when the law reads otherwise.
• The Enough is Enough Strategy
  In this strategy the court gives up trying to fix the Affordable Care Act and confirms the Halbig v. Burwell decision. No more convoluted legal opinions like the one used by Justice Robert to justify the individual mandate as a tax. Judges can go back to interpreting the law rather than reading tea leaves. This ruling would force responsibility to fix the law back on the Administration and Congress and probably forces those two branches of government to work together to fix this health law in a non-partisan manner. We already know the other way doesn’t work. The hated individual and employer mandates get fixed by the legislative process. I envision a process similar to that was used by Congress to determine which military bases to close.
• The Kick The Can Down The Road Strategy
  This is a variation of the Whac-A-Mole strategy in which the court does not rule on the Halbig v. Burwell decision in 2014 and lets the Administration try to minimize the problems with the individual and employer mandate issues. The key part of this strategy is to not make a decision until the court can see if the subsidy system is sustainable. If adverse selection rears its ugly head and the subsidy system is not sustainable then confirming Halbig v. Burwell is not a problem. The subsidy system is going to be overhauled anyway. If the subsidy system looks like it is workable then the court can decide at that time what to with Halbig v. Burwell.

I was not surprised that a divided three-judge panel of the D.C. Circuit Court of Appeals ruled that millions of Americans are not entitled to government health insurance subsidies under the Affordable Care Act because of the way the law is written. The law was pretty clear that the only people eligible for subsidies were those who purchased their health insurance via state exchanges so the only remaining question was whether the court was willing to bail out the Democratic Party for a poorly written law. The Democratic Party owns all of the successes and problems with the Affordable Care Act. They were so giddy after the elections in 2008 that they chose to go it alone on health care reform. They reasoned that the law was going to be such a rousing success that they would be in power for the next thirty years. Now a Republican Congress is stuck with the problem of trying to fix the health care laws and I doubt they are willing to take the risk of being accused of putting lipstick on this pig. Here is what Greg Scandlen said in an article over at the The Federalist called Three Conservative Ideas Buried Within Obamacare.

The political spinmeisters are already getting positioned for the next round of health care debates. They don’t really much care what happens as long as they can give their team credit for anything that seems to be good and blame the other team for anything that seems to be bad.

So Republicans want to be sure that whatever they do bears no resemblance to Obamacare, and Democrats will pounce on anything that seems similar to Obamacare as a vindication of that noble effort.

Since this is an election year and the ruling is being appealed, it is probably in our best interests to not fix this problem in 2014. Maybe by the end of 2014 we can find a few humble men and women who can work together. By then we will probably have a better estimate of the number of people who are affected, the impact of the insurance risk corridor, and the total costs to the budget. The best case scenario for a subsidy fix is that we pass a partial, non-partisan reform in 2015 with a 2016 implementation date. Maybe we will get a longer postponement of the individual and employer mandates as part of the deal. Any way you look at it you have chuckle at the naivety of Ms. Pelosi’s famous comment about the Affordable Care Act in 2010.

You’ve heard about the controversies within the bill, the process about the bill, one or the other. But I don’t know if you have heard that it is legislation for the future, not just about health care for America, but about a healthier America, where preventive care is not something that you have to pay a deductible for or out of pocket. Prevention, prevention, prevention—it’s about diet, not diabetes. It’s going to be very, very exciting. But we have to pass the bill so that you can find out what is in it, away from the fog of the controversy.

The Affordable Care Act is a grim reminder that large “comprehensive reform” strategies satisfy the political gods a whole lot better than the American people. The politics of getting policies that actually work still requires bipartisan support and lots of hard work. The Affordable Care Act had neither and it shows.

The first interesting thing I learned from the Hobby Lobby case was that it was a narrow legal decision that said for this administrative law to trump a law passed by Congress it must pass the strict scrutiny test. The Administration failed to show the court a compelling state interest to declare the Religious Freedom Restoration Act of 1993 unconstitutional. In the classic whac-a-mole style the court wisely avoided a discussion of the role of religion in the workplace. Here is Judge Napolitano explaining the Hobby Lobby ruling.

The second interesting thing I learned from the Hobby Lobby case came from the reactions of the Affordable Care Act supporters. The Affordable Care Act supporters have not quite grasped the idea that companies view health insurance as a negotiable benefit. Increasingly companies see employer sponsored health insurance as an employee benefit whose time has come and gone. The reactions to the decision reminded companies of the risk that health care crazies pose. I don’t think it will be the sole reason for a company to migrate over to a defined contribution plan but for those companies who were already looking at defined contribution plans for cost reasons, the decision just got simpler. The lure of getting back to running the company without the health care drama is very attractive.

The wise choice for the Affordable Care Act supporters would have been to let this sleeping dog lie. The employer sponsored plans are part of the 85% that was not supposed to be significantly affected by the Affordable Care Act. Making a fuss over the court ruling is counterproductive since it will encourage more companies to drop employer sponsored plans and embrace defined contribution plans. The drawback to switching over to a defined contribution plan is that it will create employer-employee chaos at an inopportune time. I can see businesses biting the bullet in 2014 but the Affordable Care Act desperately needs to settle down in 2014 and the last thing its supporters need is to try to explain more employer-employee chaos. If we have more defined contribution plans then we will likely have more people whose purchasing decision will be aligned with the individual insurance market. This will likely make it more difficult to achieve income redistribution through health care. Several health care pundits have quietly argued that income redistribution is a necessary policy objective for real health care reform. That may be true in their world but in the real world I suspect that these pundits have forgotten how much easier it is to get money out of companies than healthy individuals. The complaints could get real interesting because healthy people are notoriously passive-aggressive about health care costs. If the Affordable Care Act supporters really want to give the ACA a chance of settling down and succeeding, this is not the time or place to pick a fight with employers who for all practical purposes have ACA compliant plans. It is as if they do not want the Affordable Care Act to succeed.

I was reading the latest Thoughts from the Frontline newsletter from John Mauldin and I was struck with the thought that if I substituted Veterans Administration(VA) for China in this passage I would be describing the current situation at the VA.

There is really no way to know what is happening in China today, much less what will happen tomorrow, based on widely available data. The primary data is flawed at best and manipulated at worst. Sometimes the most revealing insights lie in the disagreement between the official and unofficial reports… suggesting that official data is useful only to the extent that we think about it as state-sanctioned propaganda. In other words, it tells us what Chinese policymakers want the world to believe.

Over the last six years the VA has been held up as the model for the Affordable Care Act. I have no doubts that some of the stories about the VA successes such as using their purchasing power to drive down drug costs are true but I am increasingly suspicious of the rest of the data. When I try to balance the VA successes with the lack of transparency and accountability, I think they provide an ominous prediction for the fate of health care reform. Like we see in China, I think we are seeing that federal programs are more prone to state-sanctioned propaganda gambit than programs with a more distributed decision making and accountability process. In hindsight it probably took more work to make up the lie than to fix the problem but once they started telling the lie it looks like they failed to find sufficient motivation to change their ways until the scandal broke. Since the Administration knew about this problem six years ago and the problem remains unfixed, this is a good reminder why so few of the successful heath care systems are pure single payer systems. To err is human, to make a really big mess you need to get the federal government involved. So why do we expect to get smarter health care decisions in the future when our current system is stuck in the state-sanctioned propaganda mode?