Ridding the Nation of Moral Hazard

Nothing is over until it’s over, and even if it’s over, it really isn’t over. Republicans didn’t have the votes to stop the Affordable Care Act from passing in 2010. They didn’t have the votes to repeal it in 2011. They didn’t have the votes to win the presidency and the Senate by campaigning against it in 2012, explicitly. The law was passed fair and square, long ago, by both houses of Congress, and survived a Supreme Court challenge too. The rules of the system were followed, scrupulously, and there are explicit rules for repealing a law. You find the votes to pass something else in its place. If you don’t have the votes, you don’t have the votes – but the Republicans were willing to shut down the government, crippling the economy, or force the United States into default, collapsing the world’s economy for a generation or two, unless the Affordable Care Act, already being implemented, was defunded or delayed for a year, or two, or three, or forever. That didn’t work either, but they did seem to want to change our system of government, to change it to a new system where laws duly enacted and upheld in the courts can just go away, if a small group of people in just the right place at just the right time can mount a credible and deadly threat about something else entirely. The threats backfired, or they got cold feet. They couldn’t sustain a prolonged government shutdown until Obama just gave up – even people who hate big government want some government, doing what it does, daily – and they decided against default. That was an idle threat, or so extreme a threat that it suddenly occurred to them that this kind of talk didn’t make them look heroic and principled. It made them look like unhinged and rather dimwitted terrorists. They dropped it. Senator Ted Cruz, who led these efforts, called them squishes, but they let it be known that they thought he was a fool. Obamacare wasn’t going away. They’d have to live with it. There’d be other issues.

Even the 2014 midterms didn’t change that. The Republicans may have taken back full control of the Senate, and achieved record overwhelming numbers in the House, but almost thirteen million more Americans, who couldn’t afford it before, now have health insurance, thanks to Obamacare. Taking that away from them would be bad politics. They’d remember who did that, so the best the Republicans could do was to refuse that Medicaid expansion thing in the states where they were in charge. That expansion was free, already paid for by previous and ongoing payroll taxes, but state after state turned down the offer. Across the nation, three or four million people would miss out on healthcare other states were providing their citizens, but that was good politics. No one was taking anything away. Large numbers of the poor and disabled and elderly never got the Medicaid their neighbors in the next state over were getting.

They’d probably never find out, so at least in that instance, the lazy bums who made nothing of their lives had gotten what they deserved – nothing. That was a partial victory for the principle of personal responsibility. Give people help and they begin to expect help, and then they demand help, and stop doing things for themselves, and then they are ruined, and totally useless, demanding that good people who work hard give them lots of free stuff. That’s what Romney’s forty-seven percent comment was about, and it all starts with what these folks call moral hazard. Giving people stuff, even if they need it, creates that moral hazard. That may be the underlying reason they hate Obamacare. The structural and administrative details of Obamacare are just details. They really do think Obamacare will ruin America. Obamacare is one more thing that will create a nation of do-nothing whiners, expecting everyone else to take care of them. Ronald Reagan said pretty much the same thing about Medicare in 1964, and every Republican was saying the same thing about Social Security in 1934, so maybe we were ruined a long time ago – but Republicans hate Obamacare. They have their reasons. Why introduce even more moral hazard now?

Now they’re stuck. Stuart Butler explains that:

Some of the Republican faithful imagine the party’s capture of the Senate means repeal of the Affordable Care Act (ACA) – or Obamacare. But, given filibuster rules the notion that a full repeal bill could pass the Senate, let alone be signed into law, is unthinkable. So what can we expect after the election turnover?

One view is that a Republican Senate, in tandem with the House, will rip out the vital organs of the ACA. By attaching key ACA changes to must-pass bills, the argument goes, Republicans would so weaken the central core of the ACA that it would essentially fall apart. On the hit list are the individual and employer mandates. Also vulnerable is federal funding for insurance “risk corridors” – a subsidized cross-subsidy that encourages insurers to take part in the ACA because it reduces the financial risk of ending up with costly enrollees. Weaken that provision, some believe, and many insurers would pull out of the ACA health exchanges altogether, causing the whole edifice to crumble.

Nope, that’s not the way to go, because there’s another way:

That’s an unlikely scenario, mainly because these organs aren’t so vital anymore. For one thing, the Administration recognizes that the mandates will likely have to be watered down to maintain much public support. But as individuals and businesses adapt to the law, and more Americans obtain often-subsidized insurance, the mandate stick is less necessary to achieve enough coverage for the ACA to be viable. Meanwhile expect worried insurers to pressure the GOP enough to prevent adjustments to the risk corridors from causing a collapse.

A lethal blow is unlikely to come from the Republican Congress. Rather a more likely threat is from the Supreme Court’s Halbig case. If the Court does strike down federal insurance subsidies in states with federal rather than state-run exchanges, that would be quite a body blow. At the very least it would eliminate a central plank of the ACA in over 30 states.

Nothing is over until it’s over, and that is now happening:

The Supreme Court on Friday agreed to hear a new challenge to the Affordable Care Act, potentially imperiling President Obama’s signature legislative achievement two years after it survived a different Supreme Court challenge by a single vote.

The case concerns tax subsidies that currently help millions of people afford health insurance under the law. According to the challengers, those subsidies are being provided unlawfully in three dozen states that have decided not to run the marketplaces, known as exchanges, for insurance coverage.

If the challengers are right, people receiving subsidies in those states would become ineligible for them, destabilizing and perhaps dooming the law.

And it all rests on a minor detail:

The central question in the case, King v. Burwell, No. 14-114, is what to make of a provision in the law limiting subsidies to “an exchange established by the state.” (If states do not establish their own exchanges, the health care law requires the federal government to run them instead.)

The challengers say the provision means that only people in states with their own exchanges can get subsidies. Congress made the distinction, they say, to encourage states to participate.

But the Internal Revenue Service has issued a regulation saying subsidies are allowed whether the exchange is run by a state or by the federal government. The challengers say that regulation is at odds with the law.

In response, Solicitor General Donald B. Verrilli Jr. told the justices that the IRS interpretation was correct, while the one offered by the challengers was “contrary to the act’s text and structure and would render the act unrecognizable to the Congress that passed it.”

Proofreading matters – the Republicans found an ambiguity, perhaps a typo. The intent of the law is clear, but someone phrased one part of one sentence badly:

In July, the United States Court of Appeals for the Fourth Circuit, in Richmond, Va., ruled against the challengers.

Judge Roger L. Gregory, writing for a three-judge panel of the court, said the contested phrase was “ambiguous and subject to multiple interpretations.” That meant, he said, that the IRS’ interpretation was entitled to deference.

“We reach this conclusion, frankly, with reluctance,” Judge Thomas B. Griffith wrote for the majority. “Our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal exchanges and for health insurance markets more broadly. But, high as those stakes are, the principle of legislative supremacy that guides us is higher still.”

In dissent, Judge Harry T. Edwards said the case was a “not-so-veiled attempt to gut” the health care law.

Of course it is, and Kevin Drum sees it this way:

In case it’s slipped your mind, this is the case that hinges on whether a typo in one sentence of the Affordable Care Act should wipe out health care subsidies in every state that uses the federal exchange. If the challengers win, subsidies will be available only in states that run their own exchanges.

Given the facts of the case, I’d normally say the whole thing is laughable. The intent of the law is, and always has been, crystal clear. But the current Supreme Court really doesn’t seem to care much about laughable. If they want to cripple Obamacare, they’ll do it. The shoddiness of the argument doesn’t much matter to them.

So this is going to be a nail-biter. If it goes the wrong way, six million people or more will lose access to affordable health care – and half the country will cheer giddily about it – because there’s just nothing more satisfying than denying decent healthcare to millions of your fellow citizens.

That’s unfair. They will cheer giddily because a real moral hazard will have been removed. Those six million people will now have to learn a bit about personal responsibility. The country will be better for it, but Jonathan Chait wonders just what’s going on here:

On the legal merits, the suit is utterly preposterous. The plaintiffs argue that the drafters of the law actually intended for the federal exchanges to deny tax credits to their customers. Of course, such exchanges would be utterly disastrous, and the insurance unaffordable. The drafters of the law all explain that they did not intend such a preposterous result. Contemporaneous documents show the same thing. Numerous other provisions in the law also support the obvious conclusion that the law was intended to provide tax credits to federal as well as state-based exchanges. The standard tool to resolve ambiguous wording in a statute is to examine its context, and as law professor Nicholas Bagley writes, “In context, Congress used the phrase as shorthand for an exchange, whether established by the state (the default) or the federal government (the fallback).”

Even if the meaning of the law were ambiguous, which it isn’t, legal principle also holds that the government can choose the meaning it finds most plausible. As Neil Siegel concludes, “The plaintiffs’ case is so weak and transparently political that it is dismaying to see it be taken seriously.” The lawsuit is not much different from arguing that Obamacare is invalid because you can’t prove Barack Obama actually exists.

Ah, but there is this Supreme Court:

John Roberts ultimately decided that destroying Obamacare would blow up his public credibility in an election year, and decided to let the law stand. That is, both sides agree that the Court’s actions need to be understood in political terms and not merely as a straightforward legal interpretation.

And the politics can be understood in two ways. On the one hand, if Roberts decided not to blow up Obamacare two years ago, why would he change his mind now? On the other hand, this lawsuit gives him another chance to blow a major hole in the law without destroying it completely. In that way, it may fit with his apparent goal of advancing the conservative movement’s legal goals without instigating a massive public backlash.

The massive public backlash would be on six million people, and those who foolishly sympathize with inveterate losers. Perhaps the Republicans think that’s a manageable number, or think those six million folks would now never vote for a Democrat again, ever – because they’re bad at proofreading. That’s possible. So is winning the lottery, but the Republicans did keep three or four million folks from getting Medicaid and no one much cared. The number of folks upset with them in this case might be just as manageable.

Chait doesn’t think so:

Medicaid beneficiaries are extremely poor. The very poor vote at the lowest rates and Republican budget proposals tend to saddle them with the steepest cuts. They are, in other words, a constituency most Republicans are willing or even eager to target.

The exchanges, on the other hand, reach well up into the middle class. Many of their customers are middle-income professionals who can’t afford insurance because they or a family member has a preexisting condition. Taking away their insurance would trigger a big ruckus. Conservative activists would be willing to endure the political damage, but the calculation for Republican elected officials might not be so clear-cut. The lawsuit, if successful, might have the contradictory effects of handing conservatives a policy victory while handing Democrats a political advantage.

Perhaps so, but it’s hard to tell now. Paul Krugman, on the other hand, doesn’t understand what’s wrong with these people:

First, there’s economic policy. According to conservative dogma, which denounces any regulation of the sacred pursuit of profit, the financial crisis of 2008 – brought on by runaway financial institutions – shouldn’t have been possible. But Republicans chose not to rethink their views even slightly. They invented an imaginary history in which the government was somehow responsible for the irresponsibility of private lenders, while fighting any and all policies that might limit the damage. In 2009, when an ailing economy desperately needed aid, John Boehner, soon to become the speaker of the House, declared: “It’s time for government to tighten their belts.”

So here we are, with years of experience to examine, and the lessons of that experience couldn’t be clearer. Predictions that deficit spending would lead to soaring interest rates, that easy money would lead to runaway inflation and debase the dollar, have been wrong again and again. Governments that did what Mr. Boehner urged, slashing spending in the face of depressed economies, have presided over Depression-level economic slumps. And the attempts of Republican governors to prove that cutting taxes on the wealthy is a magic growth elixir have failed with flying colors.

In short, the story of conservative economics these past six years and more has been one of intellectual debacle – made worse by the striking inability of many on the right to admit error under any circumstances.

Then there’s health reform, where Republicans were very clear about what was supposed to happen: minimal enrollments, more people losing insurance than gaining it, soaring costs. Reality, so far, has begged to differ, delivering above-predicted sign-ups, a sharp drop in the number of Americans without health insurance, premiums well below expectations, and a sharp slowdown in overall health spending.

The country wasn’t ruined, but they did what they did, and rode that to triumph in the midterms:

The biggest secret of the Republican triumph surely lies in the discovery that obstructionism bordering on sabotage is a winning political strategy. From Day One of the Obama administration, Mr. McConnell and his colleagues have done everything they could to undermine effective policy, in particular blocking every effort to do the obvious thing – boost infrastructure spending – in a time of low interest rates and high unemployment.

This was, it turned out, bad for America but good for Republicans. Most voters don’t know much about policy details, nor do they understand the legislative process. So all they saw was that the man in the White House wasn’t delivering prosperity – and they punished his party.

And now, because of four misplaced words, that party has messed up your health insurance too. It’s gone.

On the other hand, that’s good for you. Ed Kilgore explains that way of thinking:

One of the hardiest of conservative memes over the last few decades has been about the moral hazard created by The Welfare State: Helping people who are poor or sick may have some social benefits, but they are far outweighed by the dangers of rewarding personal irresponsibility, you see. People – and sadly, their children – need to suffer visibly and painfully for their failure to achieve success in this, the greatest country in the history of the world, where anyone with some initiative and persistence can do well. Then they’ll shape up or perish, and others will be warned.

This has always been more than a little self-serving for those who thereby celebrate their own righteousness, while often confusing privilege and luck with virtue. But I do see their point a bit better today in thinking about the moral hazard created by the Republican midterm victory of 2014.

That would be this:

You’d better believe that if Republicans are ever in the position Democrats were in when McConnell and company decided on this scorched-earth strategy, this lesson of 2014 will be remembered – because after all, personal irresponsibility was rewarded.

They were and are responsible for the needless misery of millions of people, and that’s personal responsibility too. It’s the fault of each of those people in dire straits and not their fault? We’ll see about that, if they successfully use a minor typo to prove that only the right sort of people should have health insurance.

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About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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One Response to Ridding the Nation of Moral Hazard

  1. Rick says:

    Two things:

    “… a provision in the law limiting subsidies to ‘an exchange established by the state’… The challengers say the provision means that only people in states with their own exchanges can get subsidies. Congress made the distinction, they say, to encourage states to participate.”

    Let me see if I understand this: States would be encouraged to participate in setting up exchanges if they knew that, if they didn’t, then those people in their state who needed help buying insurance wouldn’t get it?

    Nope. I still don’t understand how this would encourage a reluctant state to participate. Is anyone surprised that less than twenty states took the bait? And imagine everybody’s surprise when, after over thirty of them refused to set up exchanges, people in all those other states started getting the subsidies anyway.

    But I guess we’ll know if the challengers were right about this if, after the Supreme Court finds for their side, all those states who chose to not set up exchanges, change their minds and decide they really don’t want to be left out of a good thing!

    I’m not holding my breath. I suspect those states that chose not to set up exchanges had other reasons not to do so, reasons that might include wanting to deny Obama any victories, as well as not wanting to discourage all those people who need subsidies from moving somewhere else.

    And also, regarding Chief Justice Roberts’ incentive to head off a “massive public backlash”:

    “On the other hand, this lawsuit gives him another chance to blow a major hole in the law without destroying it completely. In that way, it may fit with his apparent goal of advancing the conservative movement’s legal goals without instigating a massive public backlash.”

    Yeah, but no. If Roberts is at all concerned about a possible massive anti-Republican backlash, he was paying absolutely no attention to the recent election, the results of which proved that voters would have given Republicans control even if they had, in the famous words of former Louisiana governor Edwin Edwards, all been “caught in bed with either a dead girl or a live boy”.

    Hey, we think the Republicans are dangerous now? Wait’ll that day comes when they finally learn they needn’t worry one tiny bit about what voters think of them.

    Rick

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