On March 4, the Supreme Court is slated to hear oral arguments in King v. Burwell — the latest “mortal threat” to Obamacare. The cacophony from progressive defenders of this misguided law is nearly deafening. The plaintiffs’ position is “absurd ,” they cry. Congress “never contemplated withholding premium subsidies” in noncooperative states. The Obama administration argues that “it would have been perverse for Senators concerned about federalism to insist on pressuring States to participate in the implementation of a federal statute.”
MIT health economist Jonathan Gruber (the one who famously championed the lack of transparency used to pass the bill — justified in part by the “stupidity” of American voters) is equally disdainful, calling the challengers’ stance “nutty,” “stupid,” and a “screwy interpretation” of the law. Overheated as his dismissive remarks might seem, Prof. Gruber only wins second place in the apparent competition for most hyperbolic rhetoric concerning this case. The top prize goes to Abbe Gluck, a law professor at Yale University who argues that were the plaintiffs’ position accepted, it would make Obamacare “the most draconian carrot-and-stick federalism statute in the U.S. Code!”
Prof. Gluck’s claimed is quite easily refuted. For 50 years, Uncle Sam has offered states a sizable carrot to states willing to participate in Medicaid. States willing to follow federal rules regarding eligibility, benefits, patient cost-sharing limits and provider payments get anywhere from half to three-quarters of their Medicaid costs reimbursed by federal taxpayers. States that refused this deal got nothing. Medicaid began in 1966 but it wasn’t until 1982 that Arizona finally decided to take the bait and put into place a Medicaid program. In 2012, Arizona’s federal Medicaid dollars accounted for more than 20 percent of total state government spending that year.
If Arizona doesn’t play ball regarding Medicaid, Uncle Sam can threaten to take away up to one fifth of state government spending. That sounds pretty draconian to me. The $5.5 billion in federal funds Arizona got for Medicaid in FY2012 is roughly five times as large as the $1.17 billion it stands to lose in federal exchange subsidies in 2016 should the King v. Burwell plaintiffs prevail.
When congressional intent is ambiguous, the Court unanimously held in Lamie v. United States Trustees 540 U.S. 526, 534 (2004) that it cannot disregard plain statutory text unless it is objectively absurd. But limiting exchange subsidies to states that set up their own exchanges is no more objectively “absurd” than threatening the loss of one fifth of a state’s budget for failure to jump through federal Medicaid hoops.
Obamacare defenders say there is nothing in the legislative history to show that Congress intended subsidies to be limited to state-run exchanges. But that argument cuts both ways. There is nothing in the legislative history showing that they intended subsidies to be available on federally-run exchanges. But there are ample examples of prior health reform plans and even health statutes that have conditioned federal financial support on states taking specific actions. Here’s just a sampling:
President Nixon’s 1974 health plan would have limited federal subsidies only to states who did what the federal government wanted them to do, leaving states that refused to do so out in the cold.
The 1993 Clinton health reform plan likewise contained substantial financial penalties for states that refused to implement the plan as reformers wanted.
In 2009, both the Senate Finance Committee and Senate HELP Committee reported out bills containing provisions that would have financially penalized states that failed to set up their own Exchanges.
All in all, Michael Cannon has documented that 24 of the 60 Democrats who voted for ACA had earlier cast votes for bills that conditioned the availability of federal subsidies on states taking some action, i.e., using the subsidies as leverage/inducement for states to do what Congress intended/hoped.
In short, the concept of relying on very strong financial incentives to elicit voluntary state “cooperation” along the lines desired by reformers has been a long-standing feature of U.S. health reform plans for decades.
Given this history, what’s “nutty,” “stupid,” and “screwy?” Believing that Obamacare’s architects would use the same strong-arm tactics? Or believing they wouldn’t?
Christopher J. Conover is a Research Scholar at Duke University, Mercatus-Affiliated Senior Scholar and Forbes contributor at The Apothecary. The author is greatly appreciative of extensive assistance provided by a small group of citizen researchers who wish to remain anonymous.