October 2, 2012

Why an incentive built into Obamacare is backfiring.

Ramesh Ponnuru explains:
Obama’s plan makes tax credits available to people who get health insurance from exchanges set up by state governments. If states don’t establish those exchanges, the federal government will do so for them. The federal exchanges, however, don’t come with tax credits: The law authorizes credits only for people who get insurance from state-established exchanges.
The idea seems to have been to get the states to set up the exchanges, but many — opposed to health care reform — have declined, despite the incentive. So the federal government will have to provide the exchanges, but without the tax credits, people won't be able to afford to buy the insurance.
States have another incentive to refrain from setting up exchanges under the health-care law: It protects companies and individuals in the state from tax increases. The law introduces penalties of as much as $3,000 per employee for firms that don’t provide insurance -- but only if an employee is getting coverage with the help of a tax credit. No state exchanges means no tax credits and thus no employer penalties. The law also notoriously penalizes many people for not buying insurance. In some cases, being eligible for a tax credit and still not buying insurance subjects you to the penalty. So, again, no state exchange means no tax credit and thus fewer people hit by the penalty.
Ponnuru's analysis meets an obstacle: "In May, the Internal Revenue Service decided it would issue tax credits to people who get insurance from exchanges established by the federal government." But his response to that is that these companies and individuals who are set to avoid the penalty will now get stuck with it, so they will have legal claims to challenge the IRS policy. The statute clearly says no tax credits, and there's an expensive consequence for them if the IRS deems the credits into existence.

54 comments:

pauldar said...

Apparently, something about a tangled weave.

Mark O said...

Ah, the Grim Reaper. Death panels being called for by the Times. To paraphrase Obama, at some point you've lived long enough.

It's a mess. In any other time in American history, the party that did this, including the President, would be overwhelmingly voted out.

JAL said...

The Dems amassed and passed this incredibly irresponsible piece of crap -- this is only the tip of the iceberg.

How can any of the intelligent liberals (lefties?) on the list support such a piece of legislation.

“We have to pass the bill so that you can find out what is in it.”

NO ONE in their right mind signs contracts without reading and having someone who knows the subject read them.

Send the jokers and miscreants left who signed this home for good before there is nothing left of the USA and our individual rights.

I have genuine anxiety for the safety and security of the Republic.

X said...

This month my tenant gets to find out what they passed and what's in it. A 5% Obamacare rent surcharge.

Dante said...

Gotta pass it to know what's in it.

Alan said...

The statute does not clearly (or even unclearly) say "no tax credits." This is the kind of glitch that treasury regulations have routinely fixed for decades, and they will fix this one. There's a lot to dislike about Obamacare, but this supposedly backfiring incentive isn't one of those things.

X said...

The law introduces penalties of as much as $3,000 per employee

it's a real mystery why unemployment remains high. It will be a real mystery as to why outsourcing will increase next year too.

bagoh20 said...

How many people know that Romneycare is only 70 pages long?

cubanbob said...

Alan said...
The statute does not clearly (or even unclearly) say "no tax credits." This is the kind of glitch that treasury regulations have routinely fixed for decades, and they will fix this one. There's a lot to dislike about Obamacare, but this supposedly backfiring incentive isn't one of those things.

10/2/12 11:11 AM

What is the relevant section of the law as written?

TWM said...

"This is the kind of glitch that treasury regulations have routinely fixed for decades, and they will fix this one."

I'm pretty sure a Republican congress, and perhaps a Republican Senate will have something to say about that.

bagoh20 said...

Yea, and Obama calls Romney the out-sourcer. This kind of thing is exactly why jobs move off shore. It's not really all wages differential - it's that hiring a worker in the U.S. is like adopting a child.

Colonel Angus said...

Amazing what you find out when you read the legislation.

Bushman of the Kohlrabi said...

The health-care plan the Obama administration got enacted isn’t going to work. That doesn’t mean they get to rewrite the law unilaterally as they go. It means they should have passed a different law.

This dude sounds kind of naive to me. Where has he been the last 4 years?

augustus said...

This is not at all surprising considering that the people who wrote and voted for this monstrosity either have no clue about how incentives and consequences actually work, or have very different goals than they would admit to.

Marshal said...

The biggest fraud in all of Obamacare is Obama handing out "waivers" to favored businesses connected with high profile Democrats like Nancy Pelosi. The corruption is simply mind-boggling.

TWM said...

Only the blue states will set up exchanges I imagine, which will send even more busineses fleeing to red states.

Left Bank of the Charles said...

So, in addition to a fiscal cliff and a tax cliff, there is also a health care cliff.

The Drill SGT said...

Alan

As I understand it, what it does say is explicitly, tax credits are given when the paragraph which covers state exchanges is in pay. That tax credits section does not also pointtonthe different branch of the logic tree where federal exchanges are invoked. In code speak

If state exchanges

Then tax credits!

Else federal exchanges

Done

bagoh20 said...

"Only the blue states will set up exchanges I imagine, which will send even more busineses fleeing to red states."

I've been working on it for months now. Not only because of this, but for all that comes with the blue hue. No blue state will be considered as possible home for my nearly 100 employees. The move will cost us well into 7 figures, but it's still worth it, and pays for itself quickly.

bagoh20 said...

Are we going over one big cliff, or will we hit each one on the way down. Does this administration have an account at Acme products?

TWM said...

"I've been working on it for months now. Not only because of this, but for all that comes with the blue hue. No blue state will be considered as possible home for my nearly 100 employees. The move will cost us well into 7 figures, but it's still worth it, and pays for itself quickly."

Might I suggest Tennessee. We're doing pretty well down here and there's no state income tax. Property taxes are low, too.

cubanbob said...

Of course the republicans can always be obstructionists in the sequestration drama by demanding a universal waiver as a condition of agreeing to some kind of resolution to the upcoming tax crises. And that is assuming Obama gets elected.

Brennan said...

This is the kind of glitch that treasury regulations have routinely fixed for decades, and they will fix this one.

lol, wut

Honestly, what are you talking about? Do you have any references for this?

Brennan said...

The corruption is simply mind-boggling.

The public doesn't know this. The palace guard doesn't report it.

It's just disgusting. The press just is not interested in investigating these incredible exceptions to the law.

They also don't report about how many executive orders President Obama has issued. 10 times as many in just four years as W Bush issued in 8 years.

bgates said...

many — opposed to health care reform — have declined

No state is "opposed to health care reform". Several states are opposed to making health care worse through Obamacare.

machine said...

...ah yes, more GOP-leaning states that get more in federal funding than they contribute in federal taxes.



TWM said...

ah yes, more GOP-leaning states that get more in federal funding than they contribute in federal taxes."

Don't be hatin', don't be blue . . .

Brennan said...

ah yes, more GOP-leaning states that get more in federal funding than they contribute in federal taxes.

Is that before or after the new definition of taxes? That is a tax credit received is equivalent to a tax paid.

PatCA said...

Obamacare: ensuring some things, but mostly decades of litigation.

n.n said...

It is health care reform without addressing the underlying causes for the progressive and inflated cost of providing medical care.

It is yet another redistribution scheme which will cause further dissociation from individual risk and accountability.

This was a program designed to fail.

bgates said...

more GOP-leaning states that get more in federal funding than they contribute in federal taxes

Among the many problems with the sort of study this idiot paraphrases without linking to are that it typically treats expenditures inside a state for a legitimate federal purpose as a "get" for that state, when Fort Hood doesn't belong to Texas any more than Camp Pendleton exists for the sake of California; conflates a state and its citizens; and pretends that within each state there should be a balance between money paid in to federal entitlement plans by current workers (note how those plans become part of general federal revenue and expenditures when it's rhetorically convenient for machine to claim them that way) and dollars distributed to retirees.

Rocketeer said...

...ah yes, more GOP-leaning states that get more in federal funding than they contribute in federal taxes.

You sound awfully bitter about things working exactly the way you want them to.

You mad bro?

machine said...

"Wednesday’s presidential debate promises sharp contrasts.

One candidate wants to repeal Obamacare, one candidate invented it. One opposed the auto industry bailout, one takes credit for it. One doubts the scientific consensus about climate change, one believes in it. One wants to “voucherize” Medicare, one wants to save it. One dismisses nearly half of Americans as a bunch of moochers, and one claims to champion the struggling middle class.

It promises to be an epic clash:

Mitt Romney vs. Mitt Romney.

Oh, and President Obama will be there, too."

Rliyen said...

Quelle Surprise.

Rliyen said...

Quelle Surprise.

Eric said...

In May, the Internal Revenue Service decided it would issue tax credits to people who get insurance from exchanges established by the federal government.

I notice that's a pattern with this administration. If they don't like the laws as written they just make up their own.

Dust Bunny Queen said...

What a clusterfuck!

This is what you get when you don't read the legislation and don't have the ability to think about the consequences of your half baked laws.

Sloanasaurus said...

I would say this is a difficult case for the IRS to win. You just can't issue tax credits if there is no statute saying you can.

However, with Justice Roberts on the Bench, anything is possible.

Michelle Dulak Thomson said...

machine,

...ah yes, more GOP-leaning states that get more in federal funding than they contribute in federal taxes.

To add to what bgates said: do you not want progressive taxation? Isn't an obvious consequence of progressive taxation that states where there are more rich people pay more per capita in Federal taxes than do states where there are more poor people, and that, even assuming that Federal spending is distributed absolutely evenly, an equal number of bucks per head, the result will be a transfer of money from rich states to poor states? And what about that outcome, exactly, don't you like?

Tim said...

Isn't life so much better in Barack Obama's America when federal agencies can just basically deem what the law is?

That totally rocks.

We need to do more of that.

Vote Democrat, People!

Laws are overrated.

Bryan C said...

The statute does not clearly (or even unclearly) say "no tax credits. This is the kind of glitch that treasury regulations have routinely fixed for decades, and they will fix this one. "

It's not unclear at all. Does it say the IRS can issue these tax credits? No? Then the IRS can't issue these tax credits.

I realize that the IRS routinely and arbitrarily violates the rule of law. Those are abuses that should be corrected via court action if necessary.

Scott M said...

Are we going over one big cliff, or will we hit each one on the way down. Does this administration have an account at Acme products?

Is it more akin to falling down the upswinging side of a paddlewheel?

Richard Dolan said...

Pelosi was right after all -- they had to pass the bill before anyone could figure out what was in it. Including the geniuses who drafted and passed it.

Glitches like this would, in the normal course, be fixed by corrective legislation. Since the statute was passed pursuant to Congress' taxing power, only Congress can fix it by using that same power. Accepting Ann's suggestion that employers who are adversely affected would have standing to challenge the IRS memo (reg? ruling?), it seems highly unlikely that it could be upheld if the statutory text is as clear as Ponnuru says. But Congress won't act to fix the glitch given that nothing that might extend the life of ObamaCare has a chance of passing the House (or could even get a vote in the Senate).

Great work, Team O.

Smilin' Jack said...

But his response to that is that these companies and individuals who are set to avoid the penalty will now get stuck with it, so they will have legal claims to challenge the IRS policy.

In the future, lawyers, not doctors, will make all health care decisions. And I thought only nuclear war could make the living envy the dead.

Matthew Sablan said...

The consequences! They were unexpected!

edutcher said...

So nice all this is coming out now.

Just in time to remind people of Zero's signature accomplishment and why everybody hates it.

Revenant said...

The statute does not clearly (or even unclearly) say "no tax credits."

You are mistaken. The law clearly states that the credits are for exchanges run by the states.

Michael K said...

"One candidate wants to repeal Obamacare, one candidate invented it. One opposed the auto industry bailout, one takes credit for it. One doubts the scientific consensus about climate change, one believes in it. One wants to “voucherize” Medicare, one wants to save it. One dismisses nearly half of Americans as a bunch of moochers, and one claims to champion the struggling middle class."

Tell me which one is Romney ? The suspense is killing me. I especially like that "scientific consensus." Corruption certainly makes for good science.

Since Romney wants to save Medicare, you're confusing me. Nobody wants to "voucherize" Medicare that I know of.

You certainly have your talking points down, though.

Revenant said...

more GOP-leaning states that get more in federal funding than they contribute in federal taxes.

States don't contribute taxes. Taxpayers do.

If votes were weighed by taxes paid, there would only be two blue states in all of America. :)

Emil Blatz said...

Doh!

Michael The Magnificent said...

The law introduces penalties of as much as $3,000 per employee

it's a real mystery why unemployment remains high. It will be a real mystery as to why outsourcing will increase next year too.

Oh, no mystery at all. Business owners, at least the ones who aren't enlightened enough to donate to Present Zero, are greedy, money grubbing, selfish capitalist pigs who aren't hiring strictly out of partisan and/or racist spite.

Wyatt said...
This comment has been removed by the author.
Wyatt said...

Washington State has announced that our Obamacare health exchange will be outsourced... So more taxes/penalties and jobs sent overseas. Excellent.

RichardBlank said...

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