Thursday, February 26, 2015

Impact of the King v. Burwell case and the Possible End of Obamacare Subsidies

Let’s assume for a moment that next June Justice Kennedy (the swing vote on the Supreme Court) will side with conservative Justices Scalia, Thomas, Roberts and Alito in the case of King v. Burwell in ruling that Congress never intended to provide subsidies to Americans getting health insurance coverage through federal-run exchanges, thereby almost immediately making health insurance unaffordable for an estimated 7.5 million Americans who just recently got insurance.  Now, I know that sounds crazy, but that’s what the King v. Burwell case is all about. 

Here is some background on the King v. Burwell case.  A group of Republican Obamacare haters found four words in the Affordable Care Act that they say restricts subsidies to Americans purchasing health insurance through state-run exchanges only.  They argue that Obama and the Democrats who largely wrote and passed the Affordable Care Act were more interested in forcing states run by Republican Governors and Republican-controlled legislatures to set up state-run health care exchanges than they were in getting the largest number of Americans covered as possible.  Consequently, they say Democrats inserted stealth wording in the law to punish any American who lived in a Republican-controlled state that did not set up its own health insurance exchange. 

The four words in contention are “established by the state” and appear in the following section:
26 U.S.C. § 36B(b)(2)(A) and (c)(2)(A)         “[T]he premium subsidy amount” is based on the cost of a “qualified health plan. . . enrolled in through [a Marketplace] established by the State under § 1311.”

Republican Obamacare haters jumped on these four words and brought a suit claiming that federally operated exchanges could not provide subsidies since they were not “established by the state”  irregardless of the fact that the whole purpose of the Affordable Care Act was to provide subsidies to people who couldn’t afford health insurance so that they would have access to affordable health insurance.  

Let me put this in context.  Republican Obamacare haters are focused on four words in the legislation and choose to ignore the meaning of the other 381,513 words in the act in their entirety.  They say, forget about the rest of the Act.   .0001 % trumps the other 99.999 %. That would include the part of the law that requires that federally-run like state-run exchanges report information on the subsidies they provide even though (in the view of the Obamacare haters) Congress never intended the federal exchanges to provide subsidies, although Congress DID intend that federal exchanges provide extensive reporting on the amount and type of subsidies they weren’t providing and couldn’t legally provide anyway.  I guess the Repubs think Democrats were just setting up a “make work” program for bureaucrats to file reports on what the WERE NOT doing.

It gets better (or worse, if you will).  In order to bring a suit in the federal courts, the Obamacare haters’ lawyers had to find some people who had cause to sue because they had been damaged by the Act.  That’s tough since: (A) most Americans already have health insurance, (B) many of those who do not are exempt from any penalties because of low income or for other reasons, (C) many others who might pay a penalty can easily avoid doing so by getting insurance through the exchanges at no or very low cost, and (D) the Act provides virtually no mechanism for the federal government to collect the penalties/fines if someone refuses to pay.  

Regardless, the Obamacare hater lawyers finally found four Americans who would allow them to use their names.  They are two men and two women, all living in Virginia with a federally-operated health insurance exchange.  The facts about these four will make you scratch your head:
  • At least, one says she doesn’t know how her name got into the case.  She doesn’t remember talking to any lawyers, but maybe she did, she can’t remember.  And, she doesn’t want anyone to lose their health insurance, even though that is what she (or better her lawyers) are suing to make happen.
  • Two of the men are veterans and qualify for coverage under the VA if they would just go to the trouble of applying.  VA coverage would make them exempt from Obamacare fines.
  • One of these men and one woman are exempt from Obamacare fines because they can’t purchase insurance through the Virginia federal exchange even with subsidies for less than 8% of their income.  The Act says you can’t be required to pay more than 8%.  By the way, the reason their insurance premiums would be over 8% even with subsidies is that they are both smokers.
  • All four have health issues, some serious, that require treatment which hospitals are required to provide even though they have chosen not to get insurance even when at least some of them could afford to do so. In short, tax payers get stuck with the bill when people don't have health insurance and are unwilling or unable to pay for their care.  I know someone who has no health insurance and has run up a $2 million hospital bill they refuse to pay.
  • Finally, three of the four are well into their early 60s and will be soon eligible for Medicare whether they want it or not.  In fact, one of the women will become eligible for Medicare this summer, possibly even before the Supreme Court rules.  The two men who are already eligible for VA coverage will be eligible for Medicare within about a year from the time the Supreme Court rules.

If the words “trumped up” come to mind, you’re right.  The whole case should have been treated as a joke, which is how most legal scholars thought it would have been treated.  It wasn’t.  The activist conservative justices on the Supreme Court decided to ignore precedent and stick their noses into the wad of stinking garbage.

Does the Outcome of the Case Really Matter?

Let’s assume that the court overules practically all of the lower courts who have ruled that the Congress logically meant to provide subsidies to everyone regardless of whether they got their insurance through a federally-run or state-run exchange.  What would happen?

  • At least 7.5 million Americans in the 34 states that don’t run their own state exchange would lose subsidies.
  • These individuals’ out-of-pocket cost for health insurance would increase by an average of 256%, making access to health insurance unaffordable to most of them.
  • Although federal subsidies in these 34 states would be illegal, the other provisions of Obamacare would still apply.  For example, insurers would still have to guarantee access to insurance regardless of health status and sick people could not be charged more than healthy people.
  • Many healthy people in these states may drop their health care coverage knowing that insurers will have to sell them a policy if they later get seriously ill thus triggering an adverse selection “death spiral” where only the least healthy obtain health insurance, causing health insurance premiums to skyrocket, causing even more healthy people to drop out.  Eventually, health insurance becomes unaffordable for all.
  • Unable to make a profit, many insurance companies will stop selling insurance in these 34 states, resulting in less competition and ever increasing premiums for those who can still obtain insurance from the few carriers that remain.
  • Some of these 34 states might decide to create their own state-run exchanges in order for their citizens to obtain the federal subsidies.  However, that would require considerable time to accomplish.  New state legislation would be required in many of these states and might be difficult to pass with Republican Governors and Republican controlled legislatures filled with on record Obamacare hater/repealers.  As the Kaiser Foundation notes, “It took existing state-based marketplaces several years to put the necessary infrastructure into place, and they were able to access federal start-up grants that are no longer available, so states would have to cover the initial administrative expenses.
  • Of course, Congress could come to the rescue and simply amend the Act to read “established by the state or federal government.”  Three words would do it.  Fat chance that will happen with the current Republican-controlled Congress.

Bottom Line:  At least 7.5 million Americans and maybe all Americans who have been able to finally afford health insurance because of Obamacare could become uninsured once again.
On a brighter note, if the Supreme Court rules to destroy Obamacare, American voters just might throw the Republican Obamacare-hating nut cases out of office in 2016 in favor of Democrats who could finally do what we should have done all along—expand Medicare to cover all Americans.  Wouldn’t that be great!
Check out these sources for more information on the King v. Burwell case and its possible ramifications:

Thursday, February 19, 2015

Unemployment—Obama vs the Republicans—Who Was Right?

You don’t hear the Republicans talking very much about the Obama record on unemployment anymore.  There is a very good reason for that.  Obama and the Democrats have done a pretty good job in bringing unemployment down.  In fact, we may be on track to a full or near-full employment economy (that would be around 4% or so) in the next few years unless, of course, Republicans gain control of the White House and implement their disastrous economic policies.

Take a look at Chart 1 prepared by the Council of Economic Advisors.  Unemployment in the U.S. peaked in 2010 and then began to decline at a steady rate largely due to the stimulus package passed by a Democratic Congress and signed by Obama, a stimulus practically every Republican opposed.  Not only has unemployment come down, but it has come down at a faster rate than forecast.  Had the stimulus been larger or Congress had passed a second stimulus in 2010, the unemployment rate would have come down faster.  Since 2010, we had positive job growth just about every month with the average number of jobs per month being created INCREASING every year.  See Chart 2.

Chart 1: Unemployment in the U.S. 2008-2014

Source: Economic Report of the President 2015 by Council of Economic Advisors

What Would Have Happened If We Followed Republican Economic Policy?

It is obvious from the Charts 1 and 2, that Obama and the Democrats handled the economic crisis of 2008 pretty well, particularly when it came to getting Americans back to work.  But, how would our country have fared if we had followed the approach the Republicans advocated.  Well, we will really never know (fortunately) however, we can compare the Obama/Democratic record to the record of the European Union.  Europe listened to the Republicans.  In fact, Republicans praised the Europeans at the time for taking the right approach—you don’t hear that from Republicans anymore.

Take a look at Chart 3, particularly the segment from 2008 on.  It compares the unemployment rate in Europe to that of the U.S.  The U.S. and Europe experienced just about the same spike in unemployment due to the 2008 recession.  Both the U.S. and Europe seemed to be on track to a slow but steady recover after 2009.  Then, by 2011 or so, there is a drastic change.  Unemployment keeps coming down in the U.S., but starts back up in Europe.  Why?  The Europeans practiced Austerity—just what the Republicans advocated.  The U.S. had a stimulus.  The Europeans focused on deficits and cut spending.  Today the unemployment rate in Europe is twice what it is in the U.S.  

(See more on the impact of a Republican Austerity approach to an economic crisis here: )

Chart 3: Unemployment in Non-U.S. OECD, Euro Area, and United States

Bottom Line:  Obama and the Democrats were right when it came to how to deal with the spike in unemployment during our most recent recession.  The Republicans offered a prescription for disaster, but they have not learned from their wrong-headed thinking.  They still offer the same old economic talking points-“cut spending, cut taxes for the rich, focus on deficit reduction.”  We’re on track to full employment thanks to Obama and the Democrats.  The only thing standing in our way is the prospect of Republicans gaining power.. Think about it.

Wednesday, February 18, 2015

It's Time End Income Inequality--Here are Two Things We Can Do

As this chart prepared by the Center on Budget and Policy Priorities shows, until about 1980, the real family income of Americans at all income levels increased at approximately the same rate.  It didn’t matter if your family was in the 20th percentile, 95th percentile or anywhere in between, you participated about equally in the growing wealth of the nation.  That all changed around 1980 when Reagan took office and the Republicans began their accent to power.  Since about 1980, lower and middle income Americans have seen few if any income gains.  The country has become richer overall, but the wealthy has gone to the top 5%.  The rich got richer, almost every year.  Income creation became less fair.  Why was that?

Chart 1:  Real Family Income

Cause #1: Decline of Progressive Taxes

As you can see from the following charts, since the 1950s and particularly since 1980, the highest income tax bracket (the tax rate very rich people pay on their income above a certain level—over about $400,000 in 2014) has been cut dramatically as has the average tax rate that the highest income earners paid.  The highest tax rate is now at a level comparable to the late 1920s, just before the Great Depression and New Deal.  These dramatic cuts in the tax rates the top 10% of Americans pay has made the taxe much less progressive as shown in Chart 3.    As a result, the burden of taxation has been shifted to lower and middle income brackets.

Chart 2: Top Tax Bracket

Chart 3: Average Tax Rate Paid by Highest Income Tax Payers

Chart 4: Progressive Taxes

NOTE:  Republicans argue that reducing the tax burden on the rich is the true path to economic growth.  They say with less taxes to pay, the rich will create jobs for the rest of us and wealth will come trickling down.  The fact is, it never happens.  The independent Congressional Research Service analyzed the impact of cuts in the top tax rates on economic growth going back to 1945.  It found practically no relation between the top tax rate and economic growth.  In fact, real per capita GDP growth was higher in the 40s and 50s when the top rate was 90%.

"Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it
is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the
1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP
increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was
1.7% and real per capita GDP increased annually by less than 1%. This analysis finds no
conclusive evidence, however, to substantiate a clear relationship between the 65-year reduction
in the top statutory tax rates and economic growth. Analysis of such data conducted for this report
suggests the reduction in the top tax rates has had little association with saving, investment, or
productivity growth."

Cause #2: The Decline of Union Membership

The decline of union membership is a second contributing cause of income inequality as can be seen in Chart #3 from the Economic Policy Institute.  Union membership in America peaked in the 1950s and has been in decline since then. The decline has been particularly sharp since 1980, again coinciding with Reagan and the rise of Republicans who have waged an ongoing and largely successful war on unions, first private and now public, by advocating so called “right to work” laws that make it very difficult for unions to operate.  

Click here for an explanation of why Right To Work laws are so deadly for unions:

Without the ability to organize, the average working American is at the mercy of his/her employer for wage gains and employers are typically very reluctant to share the bounty from productivity growth even when that bounty in no small part from worker sacrifices.  In fact, a 2013 Bureau of Labor Statistics report found more than a $3 per hour difference in he average wages of union vs non-union workers.  In short, wages for most Americans remain low because they have lost he one vehicle through which they could bargain for higher wages.  Without unions, profits from productivity gains flow to the owners and top managers who, thanks to favorable non-progressive tax policies allow the to keep most of the gains as after-tax income.

Chart 5: Union Membership and Top 10% Income


Bottom Line:  If we are concerned about income inequality (and we should be) then we need to re-institute a progressive tax system and make it easier, not harder, for Americans to organize and bargain for better wages and benefits.  It’s called Income Fairness.

Friday, January 30, 2015

Money is about to talk in politics—Big Time.

In the 2016 election, two very rich men have announced that they and their equally rich followers plan to spend nearly $900 million dollars to essentially buy control or at least enormous influence over the Congress of the United States and the American Presidency by promoting candidates and policy positions of their choosing.  An unknown amount of the $900 million will come from the personal fortunes of these two men with the remainder coming from a small number of equally rich Americans who are part of an “elite donor network.”  

Most of the money will be spent through “non-profit advocacy groups” that are not legally required to reveal their donors.  In other words, most Americans will never know that the messages they are hearing about candidates and policies they should support are coming from this small group of very rich people with a very personal agenda to change the direction of the country for their personal satisfaction, power and profit.  

To understand just how much money these two men and their followers plan to spend, consider this.  $900 million is close to the amount that Obama and Romney EACH spent in 2012 and is far more that John Kerry and George W. Bush TOGETHER spent in 2004 in their run for the Presidency.  

What this small group of very rich men is planning is perfectly legal according to a ruling by five Conservative justices of the Supreme Court in the case of McCutcheon v. FEC in 2013. 

Meet the people who plan to control the country here.  If successful in electing Republicans, these men will be in a position to dictate a wide range of government policy that affect your life and that of your family.  And, you will never know just how much they control public policy.

If this corruption of the American political system doesn’t bother you, it should.  Of course, if you have an extra $900 million laying around, you can participate equally with these rich donors in American politics.  Who of you reading this post can pledge an extra $10 million or so to start a campaign?  Let me know.

Wednesday, December 10, 2014

Obama or Reagan? Who had the best economic record?

The Republicans will tell you that their hero Ronald Reagan did the best job of handling the U.S. economy and Obama has done the worst.  Sorry, Republicans.  Obama beats Reagan on unemployment, stock performance, the national debt and healthcare spending, just to take a few measures.
Let’s review the numbers.

Obama inherited a worse unemployment rate and brought it down quicker than Reagan.


On both Total Return and Total Return Adjusted for Inflation, Obama beats Reagan hands down on stock performance as measured by the S&P 500.

Note: Reagan (January 1981 to October 1986) Obama (January 2009 to October 2014)
Source: S&P Return Calculator at

Government debt increased LESS and at a LOWER annualized rate under Obama than under Reagan.

Average % increase in government debit
% increase in government debt over 6 years

The average annual increase in healthcare spending under Obama was only a third of what it was under Ronald Reagan.