Government-Subsidized Third-Party Payer Is a Great Recipe to Make a Sector of the Economy More Expensive and Less Efficient

May 25, 2015

It’s had the same pernicious effect on college education costs as it has in the health sector.

International Liberty

What’s the most effective way of screwing up a sector of the economy? Since I’m a fiscal policy economist, I’m tempted to say that bad tax policy is the fastest way of causing damage. And France might be my top example.

But other forms of government intervention also can have a poisonous effect. Regulation, for instance, imposes an enormous burden on our economy.

Today, though, we’re going to look at how subsidies can result in costly distortions. More specifically, using examples from the health sector and higher-ed sectors, we’re going to see how “third-party payer” is a very expensive form of intervention.

We’ll start with the example from the healthcare sector. Writing for the Institute for Policy Innovation, Merrill Matthews has a must-read article about an unintended consequences of Obamacare.

He starts with a very sensible point about the effect of third-party payer.

Health care actuaries will tell…

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#Obamacare Chronicles: two-thirds of subsidy recipients had to repay the government

April 28, 2015
"Obamacare has arrived"

“Obamacare has arrived”

This should make some people mad:

Nearly two in three Americans who bought subsidized health insurance on the Obamacare exchanges this year had to pay some of the federal dollars back, according to new data from H&R Block.

That’s because they presumably collected more federal aid than their income qualified them for. In that case, consumers must either pay some of it back or — in most cases — the IRS will subtract it from their tax refund.

Policymakers have expressed concern that low-income people could struggle with paying back the subsidies — or suffer if their tax refunds are greatly reduced because of overpayments.

The average amount consumers owed back to the government was $729, cutting their potential tax refunds by almost one-third, said the tax preparation company.

The article also mentions that 25% of Obamacare subsidy receivers received larger refunds because their income was less than expected. Good for them.

BUT… It’s the angry people who will remember this: they were forced to give up policies and medical providers they liked and that met their needs for more expensive policies and more restricted networks that didn’t meet the needs they had and met “needs” they didn’t have. (1) Then they were forced to pay even more, giving back some of the tax refund (2) they thought they were getting, maybe even had already spent. And this will happen again in 2016, an election year.

Angry people have long memories.

Footnote:
(1) Like maternity coverage for elderly couples. Really.
(2) I know you have trouble with the concept, progressives, but the money belongs to the one who earned it. The government just takes it. And so a refund is just giving a person back his own money — without interest.


Reduce Out-of-Control College Costs by Ending Government Subsidies

April 5, 2015

Having watched college fees skyrocket over the years while the rolls of overpaid administrators gets ever more padded, Dan is exactly right. Student loans, a subset of subsidies to colleges, are really a racket by which the university charges more and more, the taxpayer (the source of the loan) pays now, the college gets the money, and the student spends decades paying the bill.

International Liberty

I’ve written many times about the shortcomings of government schools at the K-12 level. We spend more on our kids than any other nation, yet our test scores are comparatively dismal.

And one of my points, based on this very sobering chart from one of my Cato colleagues, is that America’s educational performance took a turn in the wrong direction when the federal government became more involved starting about 40-50 years ago.

Well, the same unhappy story exists in the higher-education sector. Simply stated, there’s been an explosion of spending, much of it from Washington, yet the rate of return appears to be negative.

Let’s take a closer look at this issue.

Writing for the New York Times, Professor Paul Campos of the University of Colorado begins his column by giving the conventional-wisdom explanation of why it costs so much to go to college.

Once upon…

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#Obamacare chronicles: government sends wrong tax information to nearly 1,000,000 people

February 20, 2015
"Obamacare has arrived"

“Obamacare has arrived”

What was it Ronald Reagan said? Oh yeah:

“The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.'”

Happy to help, America:

About 800,000 HealthCare.gov customers got the wrong tax information from the government, the Obama administration said Friday, and officials are asking those affected to delay filing their 2014 returns.

The tax mistake is a self-inflicted injury that comes on the heels of what President Barack Obama had touted as a successful enrollment season, with about 11.4 million people signed up.

California, which is running its own insurance market, on Thursday announced a similar problem affecting about 100,000 people in that state.

The errors mean that nearly 1 million people may have to wait longer to get their income tax refunds this year. And they could also affect the size of those refunds.

Another 50,000 or so who already filed may have to resubmit their returns.

My late father, a sharp man in many ways, once taught me something about handling employees:

“You can do almost anything you want to people who work for you, but you never, ever screw with their money.”

The same holds true for government and taxpayers; the Fed and California just broke that rule big-time.

Consider: We are all required by law (1) to have health insurance. If we do not, we will be punished. If our insurance is not provided by an employer, we are required, again by law, to buy it on the Obamacare exchanges. In order to afford those policies, now more expensive thanks to the “Affordable” Care Act, the government offers subsidies, the amount of which is determined by various factors, such as income and number of children. And that information has to be provided to the IRS on our tax forms, including whatever information the government provides on these new “1095” forms.  And that information in turn helps determine whether we get a refund, what size it is, or if we wind up owing the government money.

And the government gave out the wrong information.

To a million people. smiley d'oh!

It’s bad enough that people who wanted to file their return and who have almost most certainly scheduled their appointments with overworked tax-prep people will now have to delay their filings (For how long? Can they reschedule with the accountant?), but what about those who have already filed? Now they have no idea whether they get a refund or owe Uncle Sam — surprise!!

And you can bet a good portion of these one million taxpayers, most of them voters, are going to be royally ticked off about this and looking for someone to blame as we get into election season. (2)

Dad was right.

via Iowahawk:

Footnotes:
(1) This anti-constitutional monstrosity of a law, that is.
(2) That would be the Democratic Party. Not a single Republican voted for this. In fact, we were screaming like Cassandra that this was a fiasco waiting to happen. Please remember that on election day.


Welcome to tax season, now prepare to give your #Obamacare subsidy back

February 2, 2015
"Obamacare has arrived"

“Obamacare has arrived”

This item has been sitting in my files for a while (1), but, since we’re deep into tax season, it’s still relevant — especially so for people relying on that federal subsidy to help pay for their “affordable” health care:

As many as 3.4 million people who received Obamacare subsidies may owe refunds to the federal government, according to an estimate by a tax preparation firm.

H&R Block is estimating that as many as half of the 6.8 million people who received insurance premium subsidies under the Affordable Care Act benefited from subsidies that were too large, the Wall Street Journal reported Thursday.

“The ACA is going to result in more confusion for existing clients, and many taxpayers may well be very disappointed by getting less money and possibly even owing money,” the president of a tax preparation and education school told the Journal.

While the Affordable Care Act fines those who don’t have health insurance, it also provides subsidies for people making up to four times the federal poverty line ($46,680).

But the subsidies are based on past tax returns, so many people may be receiving too much, according to Vanderbilt University assistant professor John Graves, who projects the average subsidy is $208 too high, the Journal reports.

If, like a lot of people, you’re used to getting some sort of a refund, you probably already have an idea of how much you expect and how you plan to spend it. Imagine then how happy these many millions of people will be when they’re told they’re either getting less of a refund, or that they in fact owe money. And, on top of that, their subsidy for the next year will almost certainly be lower, so even more of their money will go to the insurance companies by force of law for coverage that probably isn’t as good as they had before, or at least isn’t what was promised.

That, my friends, is a recipe for angry voters. And, oh, there’s a presidential election warming up, too. Fancy that.

If anything good comes of this fiasco, it will probably be the hard-learned lesson that government is poorly equipped to do more than a certain few tasks and running a huge, massively complicated healthcare system isn’t among them.

Call it another “teachable moment.”

Footnote:
(1) Ancient by Internet standards — a whole month!

(Crossposted at Sister Toldjah)


New Diaper Subsidy is A Raise For Welfare Recipients

August 8, 2014

Proposals like this, when the state suffers from pathetic infrastructure and its finances are a wreck, makes me wonder if some sort of “political dementia” hasn’t taken hold in Sacramento. Regardless, Grimes is right: a subsidy will only hide the trues cost of the product and encourage manufacturers to raise prices, because now it’s a “right.”

KATY GRIMES

Diapers, diapers, diapers for everyone!

If ever there was evidence of the need for a part time Legislature in California, it is now: California Democrats are pushing a diaper subsidy program for welfare parents.

The rationale for this idea is right out of the welfare-state handbook: low-income parents cannot take advantage of free or subsidized child care if they cannot afford to leave disposable diapers with their child at care facilities.

This is nothing more than a boost to welfare payments, without actually identifying it as an increase. California taxpayers would be livid if the Legislature was honest about increasing welfare payments.

AB 1516 by Assemblywoman Lorena Gonzalez, D-San Diego, would create a new taxpayer-subsidized program to provide eligible families already participating in CalWORKS, with $80 a month to buy diapers for children under the age of two.

“Assemblyman Mark Stone, D-Scotts Valley, said the true cost of the bill…

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Boom: #Obamacare architect upholds #Halbig decision

July 25, 2014
"Obamacare has arrived"

“The end of Obamacare?”

I normally use that graphic as a metaphor for the needlessly disruptive, even harmful effects the Affordable Care Act is having on the American health care system and the millions who rely on it. But the First Circuit Court of Appeals ruling in Halbig v. Burwell (formerly Halbig v. Sebelius) turned the ACA into its own flaming wreck by holding that purchasers of insurance on the federal exchange were ineligible for subsidies, meaning those buyers would be forced to pay the full cost of their new, needlessly more expensive O-care plans.

Oops.

Some background: When the writers of Obamacare were designing this anti-constitutional monstrosity of a law, it was decided that states would be able to set up their own exchanges, with the federal exchange serving as the “insurance mall” for those that didn’t. To encourage states to create exchanges, it was written into the bill that subsidies for insurance purchases would only be available to those who bought their policies via an exchange “established by the State.” The idea was that pressure from purchasers who wanted those subsidies would force even conservative governors and legislatures to “opt in” to the system.

Trouble was for Obamacare fans, it didn’t work out that way.

Only 14 states set up their own exchanges (and some of those have been such disasters that their states are switching to the federal marketplace). That meant that, under the law, insurance buyers in the federal marketplace would be paying full price for their policies. It also meant that the federal government could not collect the “Roberts tax” (penalties) for not buying insurance, since those taxes were triggered by the availability of subsidies. No subsidies, no tax revenues, which the government was relying on to fund those same federal subsidies. You can just imagine how that prospect thrilled the pols in D.C.:

panic button red

 

So the IRS, hearing its master’s voice, suddenly decided it had the power to declare that “established by the State” intended to include the federal exchange, and thus the subsidy money could keep flowing.

Enter Halbig  and its argument that, no, the law meant what it plainly said, and then the First Circuit’s agreement.

The reaction on the Left has been amusing, to say the least. Ranging from shrieks of “judicial activism!!” to whines of “it’s just a typo and you know very well that’s not what Congress intended, meanies!”, they want the full, en banc, First Circuit to reverse the ruling. And, if they don’t do it, then, by golly, it’s on to the Supreme Court, where John Roberts will rewrite the law for us! Or something.

That got an awful lot harder to imagine, though, after the Competitive Enterprise Institute last night uncovered video from 2012 in which Jonathan Gruber, one of the key architects of both Obamacare and the earlier Romneycare, point-blank admitted the plaintiffs in Halbig were right:

The key moment starts at minute 31. Here’s CEI’s transcription of the big reveal:

What’s important to remember politically about this is if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits—but your citizens still pay the taxes that support this bill. So you’re essentially saying [to] your citizens you’re going to pay all the taxes to help all the other states in the country. I hope that that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges. But, you know, once again the politics can get ugly around this.

Per Michael Cannon, Gruber is off on one point, because the “Roberts taxes” are only triggered in states that create exchanges and thus get subsidies. But the core is that this destroys the government’s “congressional intent” argument, because we now have one of the designers saying the limitation of subsidies to state exchanges was the intent of Congress.

Where Obamacare defenders go from here (other than to a bar to drown their sorrows), I don’t know. They can’t give up, because the loss of the subsidies wrecks Obamacare. Can you imagine the reaction when customers on the federal exchange are told they have to pay full price, prices mandated by Obamacare, which was passed solely by Democrats?

I have no idea how the courts will handle this. Assuming the government asks for an en banc hearing, it’s possible the ruling in Halbig will be reversed, thus probably ending the matter, but I’d have to think less so after this revelation. And there is a contradictory ruling from the 4th Circuit, a situation that almost guarantees the Supreme Court would take the case in 2015.

As ST likes to say, stay tuned… popcorn.gif

RELATED: More from Reason. The Federalist on Michael Cannon’s revenge. Mr. Cannon himself points out how Halbig frees tens of millions from an illegal tax. Paula Bolyard reports how Mr. Gruber calls the plaintiff’s arguments in Halbig “nutty,” …er… but they’re his own ideas, too. Oops, again. By the way, did you know 91% of fake applicants for Obamacare can get subsidized coverage? Another reason to kill this thing and bury it under a crossroads at midnight with a stake through it.

UPDATE: This is amusing – four ways in which Obamacare defenders have desperately tried to spin Mr. Gruber’s “speak-o.”

(Crossposted at Sister Toldjah)