AAPS News August 2012 - ObamaTax
Jul 15, 2012
Volume 68, no. 8 August 2012
Chief Justice John Roberts did some reverse engineering on the law and the Constitution to uphold the Affordable Care Act (ACA or ObamaCare). Or, as with a math or physics problem that one doesn’t know how to solve, but for which one can find out the answer, he worked backwards to find a rationale.
ObamaCare had to stand—otherwise all those backroom deals (“delicate balancing” in Court parlance) would have been voided. There might have been lawsuits over the billions of dollars already spent to implement its requirements (WSJ 6/26/12). Still worse, one might work backward to the precedents, or even to Social Security, Medicare, and Medicaid. Recall that Social Security survived a Supreme Court challenge on the basis of Congress’s power to tax (AAPS News, June 2011).
Like Obama, the President’s hero Franklin Roosevelt had different messages for the public and Congress (Social Security is insurance) and for the Court (it’s not insurance; it’s a gratuity).
Like Humpty Dumpty, the Court defines the meaning of words—and beyond that, changes the meaning at will. Roberts “split the baby perversely by ruling it was not a tax under the Anti-Injunction Act, but it was a tax for taxing and spending purposes,” writes David Yerushalmi, senior counsel of the American Freedom Law Center.
Four Justices would’ve overturned the whole of the ACA, with its massive intrusions into medicine and the insurance market, on the basis of the unconstitutionality of the mandate and the lack of severability. But Roberts’s one-man opinion on the word “tax,” added to four liberal Justices’ votes for upholding the mandate, saved the entire structure.
A Choice, Not a Mandate
Five of nine Justices held that a mandate to purchase insurance would be an impermissible expansion of the Commerce Clause. Since it can’t, constitutionally, be a mandate, then it isn’t, reasoned Roberts. “While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful.” If someone chooses to make the “shared responsibility payment” to the IRS, he has fully complied with the law, states Roberts, and “the Government agrees with this reading.” Thus, Americans who do not fall under an exclusion or an exception have a choice: pay a private entity, or pay the government. [Are both taxes?]
A Tax, Not a Penalty
If something is not unlawful, it is not proper to attach a penalty to it, Roberts opines, therefore the choice is not really a penalty, no matter what the law calls it. “First, for most Americans, the amount due will be far less than the price of insurance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than buy insurance [emphasis added]. Second, the individual mandate contains no scienter requirement. Third, the payment is collected solely by the IRS through the normal means of taxation—except that the Service is not allowed to use those means most suggestive of a punitive sanction, such as criminal prosecution.”
Something cannot be both a penalty and a tax. Supreme Court precedents going back to the 1920s define penalties and taxes as mutually exclusive (WSJ 6/28/12).
By the “duck test” (if it looks like a duck, ...) the mandate is clearly a tax. Everyone who claimed it wasn’t lied, and it didn’t take a Supreme Court ruling to prove it, writes Frank Salvato (http://tinyurl.com/7e27fb9).
The IRS will police the ACA, which “includes the largest set of tax law changes in 20 years,” according to the Treasury inspector general who oversees the IRS. It is expected to spend nearly $1 billion on the law from 2010 to 2013. The IRS will assess the penalty/tax on non-exempt persons who do not have adequate proof of insurance, but it is not clear how it will enforce payment, since it does not have the authority to levy a penalty or charge interest for nonpayment of the penalty/tax. It can withhold refunds (77% of filers are due a refund) or send scary letters (AP 7/7/12, http://tinyurl.com/6nlflud). Or it can credit the Obama penalty/tax first, then seize assets for failure to pay the rest of the income tax (http://tinyurl.com/7u2vlle).
20 New or Higher Taxes
The ACA tax increase is calculated to amount to $525 billion or more between 2010 and 2019. Middle-class Americans and small businesses will pay 75% of it. Besides the mandate/tax, the ACA includes: an excise tax on charitable hospitals; a tax on innovator drug companies; codification of the “economic substance doctrine” (by which the IRS can disallow legal deductions); limitations on health savings accounts (HSAs), flexible spending accounts (FSAs), and health reimbursement accounts (HRAs); raising the threshold for deductibility of medical expenses from 7.5% to 10% of AGI; a surtax on investment income; a hike in the Medicare payroll tax; the employer mandate tax; the “Cadillac” insurance tax; and more (http://tinyurl.com/8xdblgp).
The Court has placed a limit on the expansion of the Commerce Clause. Instead, we have an infinitely elastic power of the government to tax behavior, inactivity, or mere existence.
How Much Is the Mandate/Tax?If the individual insurance mandate is itself considered a tax, notes Merrill Matthews, it is by itself the largest tax increase in U.S. history. Median U.S. family income is $50,000. The cost of family coverage, which is rising quickly, can already run $20,000/year. That would essentially be a 40% tax (Forbes 6/29/12).
However, if a family is eligible for a subsidy in the insurance exchanges—income between 100% and 400% of the federal poverty level (FPL), or between $27,000 and $108,000 for a family of four—its share of the premium/tax is limited to 9.5% of income, and the taxpayers pay the rest. Persons with incomes greater than 400% of FPL get no subsidies but are exempted from the mandate if the cheapest plan in the exchange costs more than 8% of their income. Persons with incomes below the FPL are exempt from the mandate.
Because of exemptions, most of them based on income, 40% of the uninsured population is not bound by the mandate, estimates MIT economist Jonathan Gruber, a key architect of the law (Avik Roy, Forbes 7/9/12, http://tinyurl.com/7u35875).
When fully phased in, in 2016, the penalty/tax will start at $695 and top out at 2.5% of income, with a limit of $12,500. The mandate/tax (insurance premium for a family of four) is estimated by the Congressional Research Service to reach $14,100 in 2014, up from $12,000 when ObamaTax was passed. Even with the subsidy from the exchange, the mandate/tax at 200% of FPL is $2,904 (6.3%), with families still responsible for $6,000 in out-of-pocket costs in the event of illness (Sun Beam Times 6/28/12, http://tinyurl.com/82c2x36).
Solicitor General Neal Kumar Katyal argued to the Sixth Circuit Court of Appeals that those who objected to ObamaTax could escape it simply by earning less income (Bonnie Kristian, http://tinyurl.com/72xkyy2).
The Company StoreKristian writes that the song Sixteen Tons concerns the truck system of the West Virginia mining industry, in which workers were paid in worthless substitute currency and had to make outrageously expensive purchases at the company store. She compares it with the “health care racket” that will implement ObamaTax.
The special interests, however, may not do all that well despite spending more than $1 billion on lobbying for ACA. How many people will choose to pay the mandate/tax instead of the far lower penalty/tax, knowing that they can buy insurance at the same price as everybody else as soon as they get sick? ObamaTax is a set-up for systems gaming and the same adverse selection that crippled the Federal Employee Health Benefits Program, writes Hugh Hewitt, former deputy director of the Office of Personnel Management. Whether a benefit or a tax, ObamaCare is a cancer, he concludes (http://tinyurl.com/6u5tthd).
George Orwell, Looking Back on the Spanish War
The Nominating Committee submits the following slate:
President-Elect: Thomas Kendall, M.D., Greenville, SC
Secretary: Lawrence Huntoon, M.D., Lake View, NY
Treasurer: W. Daniel Jordan, M.D., Atlanta, GA
Board of Directors: Richard Amerling, M.D., of New York, NY; Robert Emmons, M.D., of Burlington, VT; Adam Harris, M.D., of San Antonio, TX; Charles McDowell, M.D., of Johns Creek, GA; Tamzin Rosenwasser, M.D., of Venice, FL; Mark Schiller, M.D., of Greenbrae, CA; G. Keith Smith, M.D., of Oklahoma City, OK; Melinda Woofter, M.D., of Granville, OH.
Stock Market Reacts to ObamaTax DecisionIn a generally falling market apparently reacting to the European debt crisis, hospital giants HCA Holdings and Tenet Healthcare jumped 11% and 5.4%, respectively. Health insurance stocks fell 1%, with the exception of those that administer Medicare and Medicaid, which rose 9%. Government contracts to manage dual-eligible patients are an “emerging market.”
Stakeholders are angling for changes in the law. Hospitals want to peel back the $155 billion in payment cuts they agreed to, and insurers want to be able to vary premiums more by age.
Some advisors think that stakeholders grossly misjudged opportunities to make money from ObamaTax. “Déjà Vu” writes that insurance companies are “dead men walking.” Three probably insurmountable risks are the “reinforcing spiral”; accountable care organizations, which make insurers a mere shill for transferring premiums from the insured to the ACO; and the “commoditization of insurance policies,” which he predicts will all be identical (http://tinyurl.com/7227ado). For hospitals, he believes that projections of revenues from newly insured are doubtful, and that ACOs are an “existential threat.” They will expand enormously “while harboring a host of unmotivated...doctors whose practices they have taken over” (http://tinyurl.com/cow8m4o). If it appears that Obama will be re-elected, he recommends shorting a number of stocks.
Organized Medicine ApplaudsAMA president Jeremy Lazarus stated: “We are pleased this decision means millions of Americans can look forward to the coverage they need to get and stay healthy.”
AAPS CalendarJuly 18. – AAPS DC Briefing with Paul Broun, MD
July 30. AAPS New Jersey Dinner - Fighting Back: The assault on patients from ObamaCare, big insurance, bankrupt Medicaid plans, and out-of-control hospitals.
Aug 11. AAPS CA-Chapter Dinner in Long Beach, CA.
Oct 4-6. 69th annual meeting, San Diego, CA
Medicaid Expansion LimitedIn a 7-to-2 vote, the U.S. Supreme Court limited ObamaCare’s expansion of Medicaid, in the case brought by 26 states and the National Federation of Independent Business (NFIB v. Sebelius). If states do not comply with new requirements, the federal government can only withhold new funding; it cannot withdraw all federal funding to the program.
“This is an important victory,” states AAPS General Counsel Andrew Schlafly. It was also unexpected. Academic commentators, also in the NEJM, wrote that constitutional challenges to the ACA were baseless. Some predicted that federal courts would impose Rule 11 sanctions for bringing a frivolous challenge.
Gov. Rick Scott of Florida immediately announced that his state would not expand Medicaid eligibility to 133% of FPL, and he was joined by six other Republican governors. They would ultimately save their states’ taxpayers billions of dollars. While the costs of the expansion would initially be borne by federal taxpayers, these funds would start to phase out in 2017 (Michael Tanner, NRO 7/4/12 (http://tinyurl.com/76afqcz).
Justice Roberts opined that the expansion meant that Medicaid was “no longer a program to meet the health care needs of the neediest among us but an element of a national plan to provide universal health insurance coverage.” He concluded that states could not have agreed to this drastic change.
Questions on State ExchangesSome persons who would be eligible for inclusion in an expanded Medicaid program would qualify for federal subsidies in the state insurance exchange—if the state establishes one. At least five governors have explicitly refused to set one up (Scott of FL, Perry of TX, Jindal of LA, Lynch of NH, and Walker of WI). As many as 35 states have not yet taken steps necessary to establish an exchange. If the state does not set up its own exchange, the federal government has the authority, but so far no funding, to create one. However, a little-noticed provision in the law allows subsidies to flow only through state exchanges. It is those subsidies that trigger the penalty on employers who do not provide acceptable coverage. Thus, states could block the employer mandate by refusing to set up an exchange (Tanner, op. cit.).
Despite the law, the IRS has drafted a rule extending the tax credit to federal exchanges. Employers would have standing to challenge this. Rep. Phil Roe (R-TN) and Rep. Scott DesJarlais (R-TN) have introduced a law to void the IRS rules.
ObamaCare’s claim to extend insurance to the uninsured relies heavily on the Medicaid expansion and the exchanges. Thus, states have the power to make the law unworkable. By so doing, they could not only protect their own budget but potentially save federal taxpayers $1.5 trillion over the next decade, Tanner writes.
Constitutional Limits to CoercionThe decision in NFIB v. Sebelius is the first time the U.S. Supreme Court has voided a provision of a law on the grounds that a federal “incentive” has breached an invisible boundary and become unacceptably coercive. While applied only to the Medicaid expansion in this decision, this boundary might be better defined in future litigation.
Justice Roberts acknowledged that “to permit Congress to impose a tax for not doing something” could be troubling. He cites a precedent that “there comes a time in the extension of the penalizing features of the so-called tax when it loses its character as such and becomes a mere penalty with the characteristics of regulation and punishment.” He opines that with the “shared responsibility payment” it is not necessary at this point to define the precise point at which “an exaction becomes so punitive that the taxing power does not authorize it.”
The ACA does not brand a person as a criminal for failing to buy qualified insurance; it gives him the “lawful choice,” “so long as he is willing to pay a tax levied on that choice.” Justice Roberts indicates that he thinks the tax is relatively small.
While acknowledging the existence of constitutional limits on taxation, Roberts apparently ignores the “Origination Clause,” that tax bills must originate in the House of Representatives (not in the Senate and clearly not in the Supreme Court), and explicitly denies that the ObamaTax is a direct tax that must be apportioned. (A direct tax is imposed on individuals, rather than on products or activities.) He declines to specify what type of tax it is.
To accomplish its purpose, the “ad hoc” ObamaTax would have to be much larger. How much larger could it be?
Still UnconstitutionalThe decision in NFIB v. Sebelius is the worst since Kelo v. City of New London (2004), writes Joel Pollak. In Kelo, the Court ruled that a government may seize private property under eminent domain—for the benefit of another private property owner.
“The two decisions are, in fact, related since Obamacare forces individuals to pay a private insurance company..., ostensibly for the greater public good” (http://tinyurl.com/6lha5jg).
The ObamaTax is unique in that it operates to fund private businesses as much as to fund the federal government. Take your pick. “It’s the first time Fascism has been upheld...by the U.S. Supreme Court” (Nathaniel Darnell, American Vision 7/6/12, http://tinyurl.com/7fr4453).
The Court did not address how the ACA violates the Takings Clause because litigators did not bring it up. But AAPS has, in our lawsuit that has been on hold pending this decision.
“Today’s ruling begs the question of whether government can tax someone for refusing to give property to someone else,” writes AAPS General Counsel Andrew Schlafly. “ObamaCare imposes that kind of redistribution of wealth: compelling citizens to purchase overpriced insurance for the benefit of overpaid executives.” Now that the Court has ruled that the federal government cannot force citizens to buy insurance, it should follow that they also cannot be forced to pay a tax for not purchasing something if they choose not to.
Harrison Schmitt, former U.S. Senator and Apollo 17 astronaut, discusses numerous Constitutional problems with ObamaCare on http://americasuncommonsense.com (52. Healthcare and the Constitution #4, 7/9/12). He includes violation of the Takings Clause, of religious liberty, and of the right of patients and physicians to associate freely. He also draws attention to the “Obamacare Army” (Regular Corps and Ready Reserve Corps) for “both routine public health and emergency response missions.” This will be under direct command of the President and independent of the Dept. of Defense, the National Guard, or local enforcement agencies.
CorrespondenceDemonizing Doctors. A front-page article in the Viewpoints section of the Jan 12 Buffalo News asked: “Should we reduce Medicare payments to doctors? Yes: Well-paid physicians can afford slight cutbacks.” The author portrays the proposed 27.4% cut as “slight.” He tells readers that taking money away from physicians won’t drive them to the poorhouse—after all, American physicians make more than physicians in countries with socialized medicine. Doctors who leave Medicare, he says, have posh clinics “designed to cater to the top 1 percent of the nation’s elderly.”
He criticized Democrats for caving to “big pharma, big insurance and powerful physicians groups” in return for millions of dollars in campaign contributions, passing ACA instead of a single-payer system under which “no greedy doctor would be able to turn his back on the needy.” In this view, socialized, government-run medicine is the core principle of the Oath of Hippocrates.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
Political Theater. Washington, D.C., politics serves primarily as a distraction, the purpose of which is to conceal the exchange of bribes and favors by power brokers behind the scenes. United Healthcare, one of the proponents of UCA (the Unaffordable Care Act), promised to “honor” some provisions of the bill, such as the elimination of lifetime benefits caps and the inclusion of “free” “preventive” screenings, even if the Act was overturned. This was their part of the bargain, which is meant to completely destroy the insurance industry. These provisions will drive premiums up until the people scream to the government for relief from “rising healthcare costs.” The result will be a complete government takeover, with administration by United and other big guys.
G. Keith Smith, M.D., Oklahoma City, OK
How Government Uses Insurance. Policy makers discovered the great fun of controlling insurance companies. There was so much money available, and they could push social agendas without having to raise taxes! Plus, if things didn’t work out, they could blame the insurers.
John Goodman, Ph.D., National Center for Policy Analysis
Back to Politics. The Roberts Court, like Roe v Wade, may have set in motion a tsunami-powered realignment in American politics. This Perfect Storm—a renegade Court, a Social Democrat President, and unsustainable government obligations—will overturn the Social Democrats and their European-minded President, or it will peter out, and we will see the end of freedom.
Dave Racer, St. Paul, MN
“Proprietary” Pricing Information. On MediBid, doctors both in the U.S. and abroad generally offer prices that are one-half, or even less than one-half, of the “insurance discounted rates.” I’m sure the insurers do not want the public to find out.
Ralph Weber, C.L.U., Murfreesboro, TN
The Only Solution. The first question patients are generally asked is, “What kind of insurance do you have?” While “healthcare” has become all about payment, patients rarely ask what it costs. Some say we have just two options: an insurance mandate, or single payer. But the logical solution is for physicians to take the lead by returning to their professional roots. This means independently treating their patients, and then looking to patients for appropriate payment. The ability to truly serve as the patients’ advocate can only come when the contractual bondage to outside payers is broken (http://tinyurl.com/7yg37zx).
Robert Sewell, M.D., Southlake, TX
“Telephone” or “Gossip.” ACA is unconstitutional. There is no authorization in the Constitution for the federal government to be involved in medicine. Instead of reading the Constitution, the Justices rely on history and precedent, in a process resembling a childhood game: Someone whispers a message, which gets transmitted down the line, person to person, ending up totally distorted. It is also like what we criticize in current medical practice: Some people “import” erroneous data from the computerized chart and re-transmit it repeatedly, instead of interviewing and examining the actual patient.
Tamzin A. Rosenwasser, M.D., Venice, FL
The Result of Placing Corporate Interests First. The Supreme Court ignored the Constitution. It decided in favor of one-size-fits all, cost-controlled, conveyor-belt socialized medicine.
Elaina George, M.D., Atlanta, GA
Disaster. Had Chief Justice Roberts taken the Constitutional stand of the four dissenting Justices, we would not have to face the consequences of ObamaCare. It appears that my new grandson will be the victim of the type of medical care I must endure as an inmate in Florida state prison.
James Graves, M.D., Lake Butler, FL
“You Won’t Be Able to Trust Your Doctor.” This is the message that will get ObamaCare repealed. Daniel Henninger writes (WSJ 7/5/12) that in the new system doctors will be working to “get their bonus or avoid a penalty or even to keep their job.”
David McKalip, M.D., St. Petersburg, FL