In recent days, California lawmakers have finalized their budget. The legislation includes several choices regarding health care and Obamacare, most of them incorrect ones. Doling out more government largesse won’t solve rising health costs, and it will cause more unintended consequences in the process.
Health Coverage for Individuals Unlawfully Present
This move has drawn the most attention, as the budget bill expands Medicaid coverage to illegally present adults aged 19-26. California will pay the full share of this Medicaid spending, as the federal government will not subsidize health coverage for foreign citizens illegally present in the United States.
Sad as it may sound, expanding coverage to “only” some law-breaking foreigners represented a compromise. Liberal lawmakers originally wanted to expand Medicaid to all illegal residents, at a cost of $3.4 billion. But California Gov. Gavin Newsom objected to the price tag, so lawmakers agreed to fund benefits solely for the 19-26 population, and delayed its implementation until January 1, 2020.
As to those who disagree with this move, one can study the words of none other than Hillary Clinton. In 1993, she testified before Congress in opposition to giving illegal residents full health benefits, because “illegal aliens” were coming to the United States for health care even then:
We do not think the comprehensive health care benefits should be extended to those who are undocumented workers and illegal aliens. We do not want to do anything to encourage more illegal immigration into this country. We know now that too many people come in for medical care, as it is. We certainly don’t want them having the same benefits that American citizens are entitled to have.
If Clinton’s words don’t sound compelling enough, consider one way that California may finance these new benefits: By reinstating Obamacare’s individual mandate. To put it another way, people who obey the law (i.e., the mandate) will fund free health coverage for people who by definition have broken the law by coming to, or remaining in, the United States unlawfully.
A Questionable Individual Mandate
This issue faces multiple questions on both process and substance. First, the budget bill includes about $8 million for the state’s Franchise Tax Board to implement an individual mandate, but doesn’t actually contain language imposing the mandate. The bill that would reimpose the mandate, using definitions originally included in the federal law, passed the Assembly late last month, but faces opposition in the Senate.
Second, if and when the state Senate considers the individual mandate, it faces a further obstacle: The California Constitution requires a two-thirds vote to approve any tax increases. (The legislation did clear that threshold in the Assembly, which passed the bill by a 55-18 margin.) Newsom’s office claims that, because the mandate reinstates a penalty that the federal government originally imposed, the legislation requires only a simple majority for enactment. But if the Senate passes the bill by less than a two-thirds majority, expect a legal challenge on this issue.
Third, implementing the mandate imposes legal and logistical challenges. I argued in the Wall Street Journal last fall that states cannot require employers who self-fund health coverage to report their employees’ insurance coverage to state authorities. The mandate bill the Assembly passed does not include such a requirement.
Without a reporting requirement on employers, a mandate could become toothless, because the state would have difficulty verifying coverage to ensure compliance—people could lie on their tax forms and likely would not get caught. However, imposing a reporting regime, either through the mandate bill or regulations, would invite an employer to claim that federal labor law (namely, the Employee Retirement Income Security Act) prohibits such a state-based requirement.
More Spending on Subsidies
While the budget bill does not include an explicit insurance mandate, it does include more than $295 million to “provide advanceable premium assistance subsidies during the 2020 coverage year to individuals with projected and actual household incomes at or below 600 percent of the federal poverty level.”
This language creates a state-based regime of exchange subsidies on top of Obamacare’s subsidy regime. According to the bill, one-quarter of the spending would go towards individuals with incomes between 200-400 percent of the poverty level—who already qualify for subsidies under Obamacare—while three-quarters would go towards individuals with incomes between 400-600 percent of the poverty level, who do not qualify for federal Obamacare subsidies.
Obamacare epitomized the problems that policy-makers face in subsidizing health insurance. The federal law includes a subsidy “cliff” at 400 percent of the poverty level. Households making just under that threshold can receive federal subsidies that could total as much as $5,000-$10,000 for a family, but if their income rises even one dollar above that “cliff,” they lose all eligibility for those subsidies.
By penalizing individuals whose incomes rise even marginally, the subsidy “cliff” discourages work. That’s one of the main reasons the Congressional Budget Office said Obamacare would reduce the labor supply by the equivalent of 2.5 million full-time jobs.
California decided to replace these work disincentives with yet more spending on subsidies. This year, the federal poverty level stands at $25,750 for a family of four—which makes 600 percent of poverty equal to $154,500. In other words, a family making more than $150,000 will now classify as “low-income” for purposes of the new subsidy regime.
Extending the subsidies up the income scale, thereby phasing them out more slowly, minimizes work disincentives, but it also raises spending on subsidies. In fact, the budget bill includes specific language authorizing state officials to increase the appropriation beyond the $295 million amount, if necessary, to pay for the full cost of the new subsidy regime. California could end up with a rude awakening at this provision’s full cost.
Hypocrisy by Officials
The individual mandate bill gives a significant amount of authority for its implementation to Covered California, the state’s insurance exchange. The bill says the exchange will determine the amount of the mandate penalty, and determine who receives exemptions from the mandate.
Who runs California’s exchange? None other than Peter Lee, the man I previously profiled as someone who earns $436,800 per year, yet refuses to buy the exchange coverage he sells. Or, to put it another way, if the mandate passes, Lee will be standing in judgment of individuals who refuse to do what he will not—buy an Obamacare plan.
If you think that seems a bit rich, you would be correct. But it epitomizes the poor policy choices and hypocritical actions taken by officials to prop up Obamacare in California.