Monthly Archives: October 2010

Democrats’ Taxing Two Step

The New York Times published an editorial yesterday defending the constitutionality of the individual mandate.  Of particular note was a passage regarding whether or not the mandate constitutes a tax.  Despite claims by President Obama absolutely rejecting the notion that the mandate was a tax, the Times believes “a penalty to prod people into taking out health insurance seems little different [from a tax], whatever label it is called.”  The editorial also asserted that people shouldn’t spend time “getting hung up on labels adopted in the heat of political battle.”

That last passage raises two key questions:

  1. As the federal judge in the Virginia lawsuit asked of the Justice Department, does the Times believe President Obama was “trying to deceive the people?”
  2. Does the Times believe that such deception is permissible “in the heat of political battle?”

The fact of the matter is that Judge Vinson’s ruling on the motion to dismiss in the Florida multi-state lawsuit spent about 20 pages analyzing the bill text to determine that Congress did not intend for the mandate to be a tax.  From page 16 of the ruling:

“The defendants are wrong to contend that what Congress called it “doesn’t matter.”  To the extent that the label used is not just a label, but is actually indicative of legislative purpose and intent, it very much does matter.  By deliberately changing the characterization of the exaction from a “tax” to a “penalty,” but at the same time including many other “taxes” in the Act, it is manifestly clear that Congress intended it to be a penalty and not a tax.”

Judge Vinson provided five different justifications for his determination that the mandate was not a tax, based on the text of the legislation; page 22 of the ruling notes that Congress:

(i)  Specifically changed the term in previous incarnations of the statute from “tax” to “penalty;”

(ii)  Used the term “tax” in describing the several other exactions provided for in the Act;

(iii)  Specifically relied on and identified its Commerce Clause power and not its taxing power;

(iv)  Eliminated traditional IRS enforcement methods for the failure to pay the “tax;” and

(v)  Failed to identify in the legislation any revenue that would be raised from it, notwithstanding that at least seventeen other revenue-generating provisions were specifically so identified.

Of late, Democrats have come to cite the taxing power as justification for the mandate’s constitutionality.  While some may welcome Democrats finally acknowledging the health care law does in fact represent a massive tax increase on the middle class, a retrospective attempt to re-frame the law that was passed will not resolve the significant questions about its constitutionality.

Baucus Amendment 4713 to S. 510 — 1099 Reporting Mandate

Senator Baucus has offered an amendment (#4713) to the food safety bill (S. 510) regarding new corporate reporting requirements included in the health care law.  A vote on the motion to suspend the rules to allow for consideration of the amendment is expected to occur this evening; the motion to suspend is subject to a 2/3rds majority vote.

Summary and Background:

  • The amendment repeals Section 9006 of the health care law.  This Section 9006 information reporting provision requires vendors and small businesses to file Forms 1099 for any goods purchases that total over $600 in the aggregate over the course of a year—which will force all businesses, including small businesses, to file tax forms listing the amount of their annual transactions with vendors like their paper supplier, bottled water distributor, caterer, etc.
  • According to an e-mail from the Joint Committee on Taxation, both the Baucus and Johanns amendments have the same effect of repealing the 1099 paperwork requirement.  From the JCT e-mail:

“The two amendments (4713-Senator Baucus) and (4702-Senator Johanns) accomplish the same result in that they only repeal the new 1099 requirements in PPACA and leave in place the 1099 rental real estate requirements from the small business bill and the score is the same for both amendments.

There are two versions because Senator Johanns amendment is somewhat unclear in that it says Section 9006 of PPACA and the amendments made thereby are repealed.  That wording is somewhat confusing and suggests that all new 1099 requirements are repealed (including rental real estate).  It turns out that the rental real estate requirements were added as an amendment to section 6041 as amended by section 9006 of PPACA so technically rental real estate is unaffected.  Baucus’ amendment states specifically what is being repealed and makes it clear that the rental real estate reporting requirements are left untouched.”

  • Unlike the Johanns amendment, the Baucus amendment is not paid for; thus the $19.3 billion revenue loss will increase the deficit.


  • This amendment is not paid for, and therefore will increase the deficit by $19.3 billion.
  • At a time when the federal government is running budget deficits in excess of $1 trillion annually, many would argue there are plenty of opportunities to reduce federal spending by $19 billion in order to fund the cost of this amendment.
  • This amendment would add tax provisions to a Senate measure, raising potential “blue slip” considerations, as Article I, Section 7 of the Constitution specifies that revenue measures must originate in the House.

AARP to Make a Series of Left Turns

For those non-sports fans out there, you may have missed this week’s story that AARP was spending more than $40 million of its members’ hard-earned dollars on…NASCAR racing.  Specifically, the AARP Foundation signed a three year deal to sponsor Jeff Gordon’s 24 car with a price tag in excess of $14 million per year.

It’s worth noting the comments of team owner Rick Hendrick, who said “he had no idea how big AARP was until he started talking to the organization.”  He also said he “didn’t know when we started what kind of deal this was going to be – I thought it might be an insurance company deal.”

It turns out Mr. Hendrick was right to think that AARP’s involvement “might be an insurance company deal.”  As we’ve previously reported, AARP’s own 2009 financial statements document that royalty fees (or, as their members call them, kickbacks) from the sale of insurance and other products rose to $657 million – an all-time high.  Of that amount, fully 65% – or more than $427 million – came directly from United Health Group for the sale of AARP’s lucrative Medigap coverage and other related health insurance policies.  In the past three years alone, AARP has generated more than $1.1 billion in royalty fees directly from United Health Group for selling insurance products—all of which represents pure profit to the organization.

AARP claims its sponsorship is intended to raise awareness of poverty among seniors, and marshal resources to that end.  But the more than $40 million* in sponsor fees AARP is paying come directly out of the pockets of its senior citizen members – and will go to a race team that, almost by definition, doesn’t include many members over age 65.  So that raises the question:  If AARP really wants to help fight poverty among seniors, why doesn’t it stop overcharging them for insurance products instead?

*The NASCAR article also mentioned that “companies who want to get on Gordon’s car apparently will be able to purchase that space from AARP.  It’s unclear whether AARP will charge such companies seeking such advertising the same type of “kickbacks” it charges its own members when selling insurance products.

Most Significant Legislation Ever???

Appearing on the Daily Show last night, President Obama defended the health care law by claiming that “most people would say [it] is as significant a piece of legislation as we have seen in this country’s history.”

If that’s the case, and the health care law is the most significant bill ever enacted into law:

  • Why did the President feel the need to follow up that exchange with a promise to “continue to make progress?”
  • Why did the President previously claim the legislation was a “middle of the road bill?”
  • Why have Democrats in Congress refused to hold hearings on it?
  • Why do a plurality (48%) of voters intending to support Democrats in the midterm elections believe the law “won’t make much difference” to the economy, according to a Harvard survey cited in a New England Journal of Medicine article published yesterday?
  • Why are House Democrats running ads admitting they’ve “disappointed” voters on things like the health care measure?

How Obamacare Is Bad for Veterans — And the Economy

This morning the Wall Street Journal runs a story featuring comments by the influential Chairman of the New York Fed, William Dudley.  When asked in a speech yesterday about how the health care law will affect the economy, he said the law will cause “uncertainty” which will cause “people to be more cautious in terms of their behavior” – meaning businesses may not hire new workers due to the prospect of more than $500 billion in tax increases and mountains of new federal health care regulations.

Separately, the Daily Caller has an op-ed outlining how the law harms the troops – from the tax on medical devices to the lack of an SGR fix (TriCare utilizes Medicare reimbursement rates for most services, meaning veterans will also be harmed by the 30% physician pay cut coming at the end of the year) to the doctor shortages caused by the addition of 30 million newly insured Americans.

At a time when unemployment remains near record-high levels, passing a law that causes businesses not to hire undermines the prospects for future growth (even if the President believes his economic team is doing a “heckuva job.”)  Similarly, when our nation remains at war, passing a law that will adversely impact troops and veterans returning home from battle sends the wrong message to America’s soldiers.

Survey Finds 8% Average Premium Increase

The consulting firm United Benefit Advisors is out with a new survey of more than 17,000 health plans from over 11,000 employers.  The survey finds that premium rises for the coming plan year will average 8 percent.  Moreover, one in four plans face a rise of at least 13.9%.  As slide six of the Powerpoint presentation demonstrates, plans initially faced much higher premium increases, averaging 15.4% (and more than 20.8% for one in four plans).  By negotiating with their insurance carriers, they were able to reduce that increase to “only” 8 percent.

However, it is as yet unclear what the impact of the new grandfathered plan regulations will play in these premium increases.  Companies who relinquished grandfathered status in order to keep their premium increases to single-digit percentages (by, for instance, increasing co-pays or co-insurance) will find themselves subject to new benefit mandates that will raise their premiums still higher in future years.  Small firms may however have been less inclined to change insurance companies during negotiations – making them a “captive” of their current carrier – because doing so would cause them to forfeit the benefits of grandfathered status, and subject them to new federal regulations (and thus new costs) in the future.

Three More Manifestations of Obamacare’s Unpopularity

One week away from the midterm elections, and the bad political news for Democrats refuses to abate:

  1. Politico’s battleground poll from yesterday found that a majority (52%) of voters have an unfavorable view of the health care law.  Among independents, the margin is even greater – a whopping 62% unfavorable, with only 6% viewing the legislation very favorably.  (Also of note in the results from the questionnaire: 49% trust Republicans in Congress on health care, compared to 42% for President Obama.)
  2. National Journal’s poll this morning found that a majority (51%) of likely voters – as well as a majority (53%) of independent registered voters, and nearly one in four (23%) registered Democrats – support efforts to repeal the health care law in the coming Congress.
  3. The Washington Post has another political blog posting on the fate of Democrats who voted against the House health care bill last November, only to vote for the version enacted into law in March.  The results aren’t exactly encouraging for Democrats.  Among the seven “nay-to-yea” vote switchers, the only seat Democrats are favored to retain is that of – wait for it! – Dennis Kucinich.

Administration Argues 5% Premium Increase Not “Significant”

I wanted to pass on comments on premium increases by James Mayhew of HHS’ new Office of Consumer Information and Insurance Oversight (OCIIO), as reported in this morning’s BNA.  Asked how significant the impact on costs would have to be for carriers to receive waivers from the new federal mandates included in the health care law, Mayhew responded that “If you have a premium increase of less than 5 percent, I don’t think that’s really a significant increase in premiums.”  Some may note that President Obama promised to lower premiums by $2,500 for an average family, not raise them by “only” less than five percent – which for the average employer plan equates to an increase of more than $500 per family per year.

Will Employers Drop Coverage?

More stories this morning follow up on Phil Bredesen’s op-ed in the Wall Street Journal last Thursday on employers dropping coverage – Inside Health Policy has an analysis (subscription required), and the BNA reports on a discussion of the issue at an American Bar Association conference yesterday.  The BNA quotes one benefits consultant as saying many of his clients will stop offering their current health plans as of 2014: “They have done the analysis and said, ‘We’re just going to drop it going forward.’”  And the Inside Health Policy story interviews lobbyist Billy Wynne – a former staffer for Finance Committee Chairman Baucus – who believes that the other benefits of employer-sponsored coverage will encourage firms to keep offering insurance, even though he admitted that “if all that affected an employer’s decision to offer coverage was simple math comparing the costs of coverage versus the cost of dropping, then we would expect virtually every employer to drop coverage in 2014.”  He continued:

“We may see a tipping point scenario, where some large employers in particular sectors make a decision to drop, which then makes it acceptable for their competitors to drop coverage as well.  Over time, there’s little question that we will see a gradual decline in [employer-sponsored coverage], but most independent analysis suggests it will be much more gradual than Gov. Bredesen’s arithmetic suggests.”

These comments suggest far from complete confidence from a former Baucus staffer in the accuracy of predictions by Democrats – and the Congressional Budget Office – that employer sponsored coverage will be left largely unchanged by the health care overhaul.

AP Story: “Employers Looking at Health Insurance Options”

Following Tennessee Governor Phil Bredesen’s op-ed in last Thursday’s Wall Street Journal, the Associated Press has a story noting that “corporate number crunchers are looking at options that could lead to major changes” in health insurance plans for workers.  Among the quotes from benefits managers in the piece:

  • A consultant from Deloitte: “What we are hearing in our meetings is, ‘We don’t want to be the first one to drop benefits, but we would be the fast second.’  We are hearing that a lot.”
  • American Benefits Council President James Klein: “My conclusion on all of this is that it is a huge roll of the dice….[The health care law] could begin to dismantle the employer-based system.”
  • More from the Deloitte consultant: “I don’t know if the intent was to find an exit strategy for providing benefits, but the bill as written provides the mechanism.”

As the recent reports have showed, many employers may choose to drop coverage and pay a $2,000 tax rather than paying for a worker’s insurance policy that could cost upwards of $10,000 for family coverage.  And former Congressional Budget Office Director Doug Holtz-Eakin’s analysis confirms that, should employers decide to drop coverage, the cost of federal insurance subsidies will explode as employers shed their plans – making any promise of deficit reduction as a result of the law little more than a mirage.