The Impact of Federalism on Corporate Power in American Legislatures: The Case of Health-Insurance Reform

Florida, like about a dozen other states, debated in 2009 a proposed amendment to its state constitution that would have blocked, at least symbolically, much of the federal health-care insurance overhaul on the grounds that it tramples individual liberty. Behind the amendments was an industry with a vested interest—an industry that made substantial campaign contributions to the supporters of the amendment. An ethical conflict of interest lurks here, even if it is constitutional (assuming that wealth constitutes free speech, which itself is a problematic assumption), but the main issue here is how the blockage of federal law applying in Florida (and other states) would have affected federalism. What would have been better for the American federal system: federal or state legislation, or perhaps a combination? 

The full essay is at "Federalism, Corporate Power, and Legislation."

Should Health Care Be a Right?

In the Spring of 2019, President Trump promised that a Republican alternative to "Obamacare" would soon be unveiled; the majority leader of the U.S. Senate, Mitch McConnell, quickly informed the president that the prospects of such legislation passing the Democratic-controlled U.S. House were zilch. This virtually guaranteed that health care would be play a salient role in the upcoming 2020 presidential race. The underlying question, I submit, has been whether health care ought to be a right, which the government would be obligated to ensure. Such a right would obviously not be one of those that hold government back (e.g., the right to liberty). Whether a right ensured by government or holding government back, the nature of a right is such that it is to be respected by others, whether individuals, organizations, or the state. Such respect, being an obligation, constrains those others. Hence, health care as a right has been controversial in the U.S. 

The full essay is at "Survival of the Fittest."

The Right in European and American Politics: Disentangling Right from Right

The far-right in Europe has been quite different than the right-wing in American politics. Putting aside the usual caricature of “people in pointy hoods and the Ku Klux Klan,” Marine Le Pen said she still believed “the American right [was] much more to the right than the National Front.” She may have agreed with those who wanted to manage American frontiers more effectively and prevent massive illegal immigration, but she was also a big believer in the state’s ability and obligation to help its people. “We feel the state should have the means to intervene,” she said. “We are very attached to public services à la française as a way to limit the inequalities among regions and among the French,” including “access for all to the same level of health care.”[1] This statement implies that survival is a human right--something the American right has tended to eschew in favor of a survival-of-the-fittest mantra that conflates the state of nature with the interdependency in a developed economy. 

The full essay is at "Disentangling Right from Right."

1. Tracy McNicoll and Christoper Dickey, "What a Tea Party Looks Like in Europe,”  Newsweek, September 6, 2010.

Automatic Standing: The American States in Federalism Cases

Unlike that of the E.U., the U.S. system of public governance is structurally biased toward  political consolidation at the expense of federalism. In fact, the bias extends to jurisprudence. This is evident in a ruling by the U.S. Court of Appeals for the Fourth Circuit on September 8, 2011 against Virginia on the 2010 federal health-insurance reform law.

The full essay is at "Spending in American Federalism."

On the State of the (American) Union: Getting Real

It is certainly more politic to declare the state of the union to be strong rather than weak. In his State of the Union speech in January 2011, President Obama ended by stating definitively, "The state of the union is strong." Even though particulars could doubtless be found to support his claim, I contend that he severely understated the weakness in the state of the union at the time.

The full essay is at "On the State of the Union."

TARP Paid Off: But What about the Foreclosures?

TARP, the "bailout" for banks rather than mortgage borrowers, was the first big issue facing the Obama administration before the roughly $800 billion stimulus plan and the health insurance overhaul that stoked the rise of the Tea Party movement. After supporting TARP, several Republicans lost in the elections of 2010 largely because of their votes. For many Americans, TARP is a symbol of big government at its worst, intervening in private markets with taxpayers’ billions to save Wall Street plutocrats while average Americans continued to struggle to make mortgage payments or lost their houses outright.  “This is the best federal program of any real size to be despised by the public like this,” said Douglas J. Elliott, a former investment banker now associated with the Brookings Institution. “It was probably the only effective method available to us to keep from having a financial meltdown much worse than we actually had. Had that happened, unemployment would be substantially higher than it is now, the deficit would have gone up even more than it has,” Mr. Elliott added. “But it really cuts against the grain for a public that is so angry at banks to think that something that so plainly helped the banks could also be good for the public.” TARP was good for the public not in that the funds enabled Wall Street bonuses; rather, the good was solely on the macro level, as the frozen credit markets eventually thawed such that the financial system meltdown was averted.  However, this does not mean that it was "the only effective method available."

The full essay is at "TARP and Foreclosures."

Real or Incremental Change?

On October 13, 2010, Fox News reported a poll that found that women were turning on Obama.  The reason cited was that they feel there has been too much change—that it has been “jarring.”  I was stunned—wondering if I was listening to a broadcast from another planet. I remembered that when I had been sampling a fattening food item in a grocery store in my antiquated home town in Illinois; the old woman who gave me the sample, said, “We have lots of devils here!” as she was handing me the sample.  She was referring to the array of food samples in the store that day a few weeks before Thanksgiving.  My reaction, which I charitably did not share with her, was, Oh, horrors! I wondered what century she was from (probably Calvin's, I concluded privately as I chewed a “devilish” olive). I wondered, moreover, why some people magnify little things into horrendous sins. Such people, I concluded, cannot seem to let go of what is to the rest of us so utterly antiquated and get with it. That is, why are some people so resistant to change? Why do they perceive small, incremental changes as somehow momentous—even jarring?

The full essay is at "Real or Incremental Change."

The Tail Wagging the Dog: Congress under the Influence

Congress may be like a drunk, unaware that it is being handed one drink after another by vested interests oriented to legislation with specific financial objectives. On February 28, 2010 on CNN’s State of the Union, Nancy Pelosi, Speaker at the time of the U.S. House of Representatives, said that the health insurance companies didn’t want a government-financed and operated "public option" for American citizens, so it was off the table. Her statement resonates with the earlier one by U.S. Senator Richard Durbin just after his forclosure-assistance amendment failed: "The banking lobby owns Congress." That the health insurance companies and Wall Street banks were generally viewed as at least partially culpable even as they still had Congress in their pockets points to a serious corruption in American government.

The full essay is at "Congress Under the Influence." 

De-Funding Obamacare

It is odd that even after a bill becomes a law, it can be defunded, thereby effectively killing it even though it has not been voted down.  One would think that it would be required to pass the funding that is required by the law. The Republican Party has strategized on how to deconstruct Obama’s health-insurance law through various means.

The full essay is at "De-Funding Obamacare."

A Bit of Federalism in ObamaCare

Senator Ron Wyden has written to government officials of Oregon to encourage them to “come up with innovative solutions that the Federal government has never had the flexibility or will to implement.” This is significant because he is a democrat. As long as a state covers the same number of uninsured and keeps coverage as comprehensive, the following can be waived:

1. the individual mandate to purchase insurance (i.e., what Virginia and Florida are suing over)

2. regulations about business taxes

3. federal standards for minimum benefits

4. allocation of subsidies in the insurance “exchanges.”

The full essay is at "Federalism in Obamacare."

Source: Wyden Defects on ObamaCare, WSJ, September 3, 2010, p. A16.

Betraying an Electorate: On President Obama's Deal with Drug Companies

While campaigning for the U.S. presidency in 2008, U.S. President Obama decried the greedy Republican lawmakers acting at the behest of the drug companies to keep drug prices artificially high. A year later, those same drug companies wanted Obama to oppose a Democratic proposal that was intended to bring down the prices of medicine. Beyond betraying those voters who voted for him based on his campaign rhetoric on drug prices, Obama belied the trust that is necessary for a viable republic to function democratically.

The full essay is at "Betraying an Electorate."

Drug Companies as Feeding Machines: Don't Feed the Sharks

In 2008, drug companies raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That added more than $10 billion to the nation’s drug bill, which was on track to exceed $300 billion in 2009. By at least one analysis, this was the highest annual rate of inflation for drug prices since 1992. “When we have major legislation anticipated, we see a run-up in price increases,” says Stephen W. Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota.  A Harvard health economist, Joseph P. Newhouse, said he found a similar pattern of unusual price increases after Congress added drug benefits to Medicare a few years ago, giving tens of millions of older Americans federally subsidized drug insurance. Just as the program was taking effect in 2006, the drug industry raised prices by the widest margin in a half-dozen years.  “They try to maximize their profits,” Mr. Newhouse said. However, the drug companies claimed they were having to raise prices to maintain the profits necessary to invest in research and development of new drugs as the patents on many of their most popular drugs were set to expire in a few years. The drug makers were proudly citing the agreement they had reached with the White House and the Senate Finance Committee chairman to trim $8 billion a year — $80 billion over 10 years — from the nation’s drug bill by giving rebates to older Americans and the government. However, if realized, the price increases in 2009 would effectively cancel out the savings from at least the first year of the Senate Finance agreement. Moreover, some of the critics claimed that the surge in drug prices could change the dynamics of the entire 10-year deal. “It makes it much easier for the drug companies to pony up the $80 billion because they’ll be making more money,” said Steven D. Findlay, senior health care analyst with the advocacy group Consumers Union.

The full essay is at "Drug Companies as Feeding Machines."

Source:

Duff Wilson, "Drug Makers Raise Prices in Face of Health Care Reform," The New York Times, November 15, 2009.

Congressional Statements on Obamacare: A Crack in Representative Democracy

Even as democracy has many virtues, the political system is not without its own weaknesses. In times of economic crisis, such as Germany in the 1930s, stressors can “fan the flames” such that a few opportunistic people can exploit the vulnerability to the extent that the democracy itself collapses. The “rising phoenix” is often much worse than the original weakness. In this essay, I analyze how a congressional report on “Obamacare,” or the Affordable [health] Care Act, triggered a chain reaction that brought a weakness of representative democracy to the surface. Unfortunately, I do not believe many people thought it very serious (i.e., systemic implications); most Americans probably did not even notice the brief rupture on the skin of the U.S. body politic. For my “microscope slide” of the underlying “virus,” I have carefully selected a slice of the relevant “biomass” in which the pathogen can be most easily seen; it is hardly partisan in nature even though it tends to manifest as such. While you examine my “slide” below, I recommend that you ignore the partisan puss lest you miss the proverbial “fly in the ointment.” Once you have detected the rascal, you might want to ask yourself whether the lapse in representative democracy now rendered transparent is sourced in the people or their respective representatives.

On February 4, 2014, the Congressional Budget Office released a report that mentions in a “oh, by the way” fashion a novel twist in how Obamacare could be expected to impact jobs. Whether out of sheer gamesmanship or ignorance (of whom?), some of the public conclusions from Congressional leaders show more generally the gulf between what the public “is fed” by elected representatives and the actual content they claim is behind their interpretations.

Providing a succinct account of the “twist,” congressional budget analysts said that 2.3 million Americans “who would otherwise rely on a job for health insurance will quit working, reduce their hours or stop looking for employment because of new health benefits available under the Affordable Care Act.[1]

House Budget Committee Chairman Paul Ryan’s first statement on the report, however, concludes that the report proves that the health care law “will push 2.3 million people out of the workforce.”[2] At the time, many of Ryan’s Republican colleagues were making similar claims. I want to isolate the word push here, for it is logically incompatible with the report’s claim that people staying in a job only for the health-insurance benefit will no longer have to continue in the job to receive affordable health-insurance.

Notably, some influential conservatives were cautioning Republican members of Congress to be careful with their own nterpretations, lest constituents and even the public at large (domestic and even global) catch a glimpse of the proverbial “man behind the curtain.[3] Writing in POLITICO magazine on February 4th, National Review editor Rich Lowry notes that “we aren’t talking about jobs that are eliminated in the usual sense of discouraging employers from hiring, as some Republican talking points suggested.”[4] Yet this warning did not stop Rep. Lynn Westmoreland from referencing the CBO report on February 11th as Janet Yellen, the new chair of the Federal Reserve, faced a House committee. Adopting a factual tone, Westmoreland told the Fed chair that the Affordable Care Act "is estimated to cost more than 2.5 million jobs over the next decade." He then asked her whether she thought Obamacare would have an impact on "economic growth and job creation."[5] Lest I belabor the obvious, 2.3 million is less than 2.5 million, and, moreover, the report does not claim the jobs would be lost, as implied by "cost" and "job creation." 

Notice that Rep. Paul Ryan is using "props" (e.g., gray suit, button, flag, and the all-caps title) that add to the visual impression of authoritative fact rather than opinion, ideology, and interpretation. (Image Source: CNN)

Rep. Ryan had at least gone out of his way on February 5th during a hearing on the report to “clarify” his initial statement. “So just to understand this," he said, "it’s not that employers are laying people off, it’s that people aren’t working in the workforce, aren’t supplying labor to the effect of 2 and half million jobs in 2024, and as a result that lower workforce participation rate, that less labor supplied, lowers economic growth?” he asked CBO director Doug Elmendorf.[6] The easy pivot may have saved the Budget Committee chairman his credibility, yet Westmoreland's statement and question demonstrate that disinformation can have considerable staying power, even becoming the default, nonetheless.

I submit that the misinformation had been so glaring that even the general public, otherwise occupied with life, might notice the sheer distance between Ryan’s conclusion and what credible experts were saying of the report. Do we know what is really going on? If not, how can we make good judgments in voting?

In other words, the democratic premise of viable self-governance by a virtuous and educated citizenry may contain an inherent weakness in as much as the electors rely on their respective representatives for information translated for general consumption via interpretation. As the number of electors per representative increases (i.e., larger districts, especially if in an empire-scale republic of republics and citizens), the reliance increases, exponentially I suspect. For one thing, the constituents must rely increasingly on the media to transmit (and shape) their respective representative’s interpretations.

Furthermore, “official” misrepresentations by elected representatives can mask for many voters the value to the individuals who no longer have to work in a (second) job they hate, the companies for whom motivated employees are an asset, and even society itself (happier people). To be sure, a lower labor-force participation rate in a particular job category means higher wages (to attract potential workers), other things equal. Some employers may find that the increased commitment is not worth the more tangible monthly cost.

In fact, Obamacare may not even be the primary culprit behind relatively fewer people seeking employment.  According to The Washington Post, CBO’s analysis points out that “the upward pressure on [the labor participation] rate from improvements in the economy will be more than offset by downward pressure from demographic trends, especially the aging of the baby-boom generation.”[7] By implication, the downward pressure from Obamacare come in second, at best. As part of her congressional testimony on February 11th, Fed chair Yellen did not even mention the Affordable Care Act as a factor in the downward pressure; rather, she pointed to the aging population as the main contributor in the downward trend, with structurally and cyclically unemployed giving up playing a secondary role.[8]  

That the 66% participation rate held from 2004 to 2008 suggests that sustained increases in GDP can counter the huge aging factor as the unemployment rate falls. However, as shown in 2010-2012, both rates can fall concurrently, suggesting an impact from the long-term, or structurally, unemployed losing unemployment compensation and even finding further job-hunting to be futile.

Lest business managers fear a spike in wage rates, the report projects that the unemployment rate will decline only gradually, not dropping to 5.8 percent until 2017 and 5.5 percent in 2024. “Factors such as obsolescent skill-sets and the spread of automation that have fed into the persistently high long-term unemployment are expected to have diminishing effects on the unemployment rate after 2017.[9] We can expect, therefore, that the positions freed up by demographic changes and Obamacare will not go vacant for long; as pointed out above, it is not as though the positions themselves are to be sacrificed on the altar designated by the O-god.

In short, Ryan’s initial statement suggests not just that elected representatives are capable of putting out blatantly false “information” on a policy or new law (this is hardly a revelation), but also that electors may make electoral and public-policy judgments on the false assertions. Especially in a large, empire-scale republic like the U.S., the E.U., or India, the citizenry may have to rely so much on media-shaped sound-bites that the pronouncements are instantly stamped not only with legitimacy, but also as the default. In other words, an interpretation said into a microphone and then broadcast by the media enjoys the presumption of being true even if it is blatantly false. Falsity as truth coming from elected officials is not necessarily checked, since no other quarter in the public discourse has so much authoritative status. Furthermore, the media no longer speaks with one voice, so any “truth correction” may be eclipsed by rhetoric or assumed to be mere partisanship. In terms of representative democracy itself, the representatives may be able to exploit the inherent informational-difference that exists between them and their respective electors.

---

1. Zachary A. Goldfarb and Amy Goldstein, “Health-care Law Will Prompt over 2 Million to Quit Jobs or Cut Hours, a CBO Report Says,” The Washington Post, February 4, 2014.

2. David Nather, “Both Parties Keep Cherry-picking CBO Report,” Politico, February 8, 2014. See also "ObamaCare Could Lead to Loss of Nearly 2.3 Million Jobs, Report Says," Fox News, February 4, 2014.

3. This reference is to the Wizard working the controls behind a curtain in the film, The Wizard of Oz.

4. Zachary A. Goldfarb and Amy Goldstein, “Health-care Law Will Prompt over 2 Million to Quit Jobs or Cut Hours, a CBO Report Says,” The Washington Post, February 4, 2014.

5. "Economy & Monetary Policy," U.S. House Financial Services Committee, February 11, 2014.

6. Zachary A. Goldfarb and Amy Goldstein, “Health-care Law Will Prompt over 2 Million to Quit Jobs or Cut Hours, a CBO Report Says,” The Washington Post, February 4, 2014.

7. Ibid.
8."Economy & Monetary Policy," U.S. House Financial Services Committee, February 11, 2014.
9..Zachary A. Goldfarb and Amy Goldstein, “Health-care Law Will Prompt over 2 Million to Quit Jobs or Cut Hours, a CBO Report Says,” The Washington Post, February 4, 2014.

The "Federal" Obamacare Marketplace: Could the E.U. Directive Have Helped?

By the end of 2012, the chief executives of twenty-six of the American states had decided not to set up medical-insurance exchanges as part of “Obamacare.” In the absence of such exchanges, the law mandates that the federal government create and run the exchanges itself. To the extent that the states’ rationale is that Obamacare violates the principles of federalism, one subtle consequence of the decision to go with the U.S. Government's internet-marketplace is likely to be more rather than less political consolidation at the expense of the wherewithal of the states and the federal system itself. 


The complete essay is at Essays on Two Federal Empires.

Chief Justice John Roberts: Federalism Beyond Medicaid

“As chief justice, Roberts has been extremely careful with the institutional reputation of the court.” So says one of the lawyers who filed a brief to unhold Obama’s signature health-insurance law of 2012. Even so, the Roberts court had since 2005 cut back on campaign spending limits, gun control laws, procedural protections for criminal defendants, and the government’s authority to take race into account in college admissions decisions. The question of the reach of federal power, which is at the heart of the case on the health-insurance law, has been less salient, particularly relative to the Rehnquist court, according to Sri Srinivasan, principal deputy solicitor general for the U.S. Government at the time of the case.

The last time the U.S. Supreme Court had “ruled that a major piece of economic legislation was beyond Congressional power to regulate commerce was in 1936, when the court struck down minimum-wage and maximum-hour requirements in the coal industry.” Not long after he joined the U.S. Court of Appeals for the District of Columbia Circuit in 2003, Roberts argued unsuccessfully that the commerce clause should not be used by Congress to protect an endangered species—a toad—which “for reasons of its own, lives its entire life in California.” That is at least predominately not an economic objective, however, and the Morrison and Lopez cases in the Rehnquist court had dealt with non-economic objectives through the commerce clause.

                            John Roberts, Chief Justice of the U.S. Supreme Court                       Brendan Hoffman/NYT

Roberts’ general view regarding the commerce clause can be grasped from what he said at his confirmation hearing to be the Chief Justice. “It is a broad grant of power,” he said. Congress “has the authority to determine when issues affecting interstate commerce merit legislative response at the federal level.” If he meant that Congress has the definitive authority to assess whether a proposed Congressional law fits within the commerce clause, Roberts was putting Congress in a conflict of interest in terms of Congressional power.

Concerning the conflict of interest, the vested interest that Congress has in its own authority can be expected to weigh heavily in any self-determination concerning whether the commerce clause applies to a piece of legislation. Separation of powers does not forestall the Court from its responsibility to interpret the U.S. Constitutional through judicial review of Congressional laws. Even if it can be assumed that lawmakers who voted for Obama’s health-insurance law believed the commerce clause justifies the mandate, those lawmakers should not have the final say in judging the matter of their own use of power. Otherwise, there is little in the U.S. Constitution that can limit government, and this is what a constitution does for a living.

Fortunately, Roberts did not leave the matter of the health-insurance mandate to Congressional judgment in the oral arguments. Like some of the other justices, he expressed concern over the power of Congress to create commerce by forcing citizens to purchase a product even so that the manner of payment for healthcare could be better regulated. Such a concern was hardly new. His observation on the following afternoon concerning whether the Congressional expansion of Medicaid violates the states’ sovereignty, and thus federalism, is more stunning as a rebuke on Congressional power.

At issue in the oral arguments over Medicaid was whether the discretion of the Secretary of Health and Human Services to withhold all federal funding for Medicaid should a state government refuse the expansion financed 90 percent by the U.S. Government constitutes coercion. Justice Breyer suggested that such a threat was not rational and thus could not stand as viable discretion, even given the statute’s allowance. However, Justice Scalia pointed out that a statute itself need not be rational. Even if coercion is not involved in offering a gift of federal money, the threat to withhold what the state had been accustomed to receive could constitute coercion because the states had already become dependent on the federal trough.

The reality is, the Chief Justice said, the states have “since the New Deal” cheerfully accepted federal money. “It seems to me that they have compromised their status as independent sovereigns because they are so dependent on what the federal government has done.” He could well have ended his statement with “has given.”  Of course, the “gifts” of federal money have come with strings, and the expansion of Medicaid that was at issue in the oral arguments is no exception. Indeed, the expansion is backed up by an explicit threat of withholding the existing funding should a state government refuse. Beyond the question of whether either the strings or the threat constitute coercion, Justice Roberts’ broad constitutional observation of compromised independent sovereigns transcends the issue of Medicaid. American federalism itself has been compromised.

The state governments, which together constitute a system of government within the federation, have become like dependent vassals from decades of taking money from the General Government of the Union. States implementing federal statutes constitutes decentralized consolidation, not federalism. The federal model constructed in convention in 1787 requires two systems of government, each of which is sovereign in its own domains of power authorized by a constitutional document. A reduction to one sovereign is like collapsing one lung, and the person is compromised. What were to be sovereigns having residual power and able to serve as a check on overreaching by another sovereign, the federal government—one of limited powers—had been compromised by dependency. As salubrious as gift-giving is, if the practice makes others dependent over time, sickness impairing liberty is bound to result.

In a unanimous decision in 2011, Justice Kennedy wrote that limiting the power of the U.S. Government “protects the liberty of all persons within a state by ensuring that laws enacted in excess of delegated governmental power cannot direct or control their actions. By denying any one government complete jurisdiction over all the concerns of public life, federalism protects the liberty of the individual from arbitrary power. When government acts in excess of its lawful powers, that liberty is at stake.” When a government in a federal system of public governance (e.g., the U.S. Government) is allowed to encroach on the domains of another system of government in the federation (e.g., the state governments), the precedent is established by the deed itself whereby the constitutional parchment is relegated or rendered wholly impotent in constraining government. As providing constraints on government is the job of a constitution, the constitutional basis of governance itself is compromised when one government in a federal system gets away with monopolizing the governmental sovereignty. Ultimately, the rule of law is compromised here by power aggrandizement—an addiction to power that operates in denial of constraints.

Regardless of whether the states were at fault in taking so much federal money or Congress had over-reached even in offering the gifts (gifts with strings), the federal system itself is out of balance, or sick, because the states are no longer governmentally sovereign. To prescribe a treatment, the medicinal focus must go beyond questions of fault to arrive at remedies oriented to restoring health to the system as a whole. That is to say, the focus must be on the overall system of federalism. Deferring to the patient (i.e., Congress), saying in effect, heal thyself, is a recipe for death. With the people largely unconscious, the media and popular politics myopic, and the presidency too often issue-oriented and partisan rather than oriented to the whole, Chief Justice John Roberts may hold the fate of the patient in his hands.

 

Sources:

Adam Liptak, “In Health Act, Roberts Given Signature Case,” The New York Times, March 12, 2012.
http://www.nytimes.com/2012/03/12/us/health-care-act-offers-roberts-a-signature-case.html?pagewanted=all

Adam Liptak, “On Day 3, Justices Weigh What-Ifs of Health Ruling,” The New York Times, March 29, 2012. http://www.nytimes.com/2012/03/29/us/justices-ask-if-health-law-is-viable-without-mandate.html?pagewanted=all

Adam Liptak, “Appealing to a Justice’s Notion of Liberty,” The New York Times, March 30, 2012. http://www.nytimes.com/2012/03/30/us/justice-anthony-m-kennedy-may-be-key-to-health-law-ruling.html

Poorest at Risk: U.S. States Cut Lifelines

“State finances are teetering with $4 trillion in unfunded liabilities to cover pensions and health care for state workers, along with revenue shortfalls, antiquated financial practices and skyrocketing Medicaid costs.” This according to the Huffington Post, based on a report in July 2012 by State Budget Crisis Task Force, which was organized by former Federal Reserve Chairman Paul Volcker (R) and former New York Lt. Gov. Richard Ravitch (D). Volcker and Ravitch said that unfunded state government pension obligations could total as much as $3 trillion, triple the $1 trillion estimate produced by the states. This is in addition to the $1 trillion in unfunded health care obligations for retired state employees. This does not include the rising Medicaid costs. The report notes that state governments have been borrowing to pay for operating expenses in order to comply with state constitutional mandates for balanced budgets. Those loans and the practice of shifting spending between budget categories make balanced budgets "illusory," the report said. Lastly, Volcker and Ravitch point out that "one-shot" financial measures are common in state governments, including those that pile up debt for the future.

The most striking thing concerning the finances of the states studied (California, Illinois, New Jersey, New York, Texas and Virginia) is the noted threat to the social order itself. "The thing that worries me is the threats to the social order," Ravitch told The Huffington Post, noting that "cultural and social bankruptcy precede financial bankruptcy." "You can't cut human services and cut the ability of government to take care of the people"—meaning without expecting the collapse of the social order. Such a slide tends to be gradual, sliding below the radar screen of the general public.

For example, during 2011 over 500 people in the U.S. died every week because they were without access to health care. That’s like having a full A380 (the double-decker jumbo-jet, larger than the 747) crash every week of the year, albeit without the headlines. The collapse of a social contract happens gradually, without much fanfare because enough of the electorate is unaffected.

Furthermore, the changes that led to an increased reliance on government entitlement programs by the most vulnerable in society were gradual as well. The increasing divorce rate beginning in the 1970s and the increasing geographical distance permitted by air travel during the last quarter of the twentieth century are just two factors making it less likely that families would care for their own. The daily demands of sustenance mean that charitable organizations could not possibly pick up the slack. As a result, government entitlement programs became the default. Compromising them without providing for an alternative could not but put the social order (a.k.a. social contract) at risk, even if this risk is not shared or even noticed by the majority of the electorate.

To obviate the collapse of its social order, a government would have to distinguish between sustenance programs and the other budget categories. To give but one simplistic example, a town can do without its municipal pool for a summer, but a homeless man needs food every day. Cutting ten percent from both categories ignores this vital distinction, and thus puts the social order at risk, even if people do not notice that the man is no longer sleeping on the bench but has died.

Source:

John Gelock, “Paul Volcker, Richard Ravitch Say State Budget Crisis Threatens ‘Social Order,’” The Huffington Post, July 17, 2012. http://www.huffingtonpost.com/2012/07/17/paul-volcker-richard-ravitch-budget_n_1677739.html

SCOTUS: Congress Coercing States to Expand Medicaid

The aspect of the court’s decision on “Obamacare” that forbids Congress (and the President) from threatening states by withholding funds already promised is significant in terms of American federalism. In his dissent, Scalia notes the Court had never before “found a law enacted under the spending power to be coercive.” In the case then before the Court, all but two justices found “the conditional of a State’s continued receipt of all funds under a massive state-administered federal welfare program upon its acceptance of an expansion of that program” to be just that, and thus unconstitutional. The majority was doubtlessly acting to protect federalism from even more encroachment by the U.S. Government at the expense of the sovereignty retained at least de jure by the state governments.

According to the precedent, while Congress can specify the purpose to which funds can be used by states, other funds already being received by the states cannot be held ransom. As a result, we can expect greater differences between the states in terms of government programs, including entitlement programs like Medicaid. Given the empire-scale of the American Union of fifty republics, such diversity is both natural and healthy. 

It is significant that in the case before the Court, twenty-six states were objecting to the Affordable Care Act. That the anticipated forced-expansion of Medicaid could have been onerous to the states may thus have weighed more heavily on the justices than did the burden of the mandate on individuals. By its decision, the Court gave those states some relief in being able to “just say no” to the expansion without having to lose existing Medicaid funds. In recognizing the states’ authority in this respect vis a vis that of the federal government, the justices evaded further political consolidation at the expense of federalism (and the sovereignty retained at least formally by the states). 

Sources:

 

National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al., 567 U.S. Supreme Court (2012).

Amanda Terkel, “GOP Governors Resist Implementing Obama’s Health Care Law DespiteSupreme Court Ruling,” The Huffington Post, June 29, 2012. 

SCOTUS Decision on Obama's Healthcare Act: The States v. The Poor

The U.S. Supreme Court ruled on June 28, 2012 that the mandate in the Affordable Healthcare Act (“Obamacare”) is not constitutional under the commerce clause (i.e., Congress cannot force citizens and residents to buy health insurance). As per Scalia’s dissent, “when Congress provides that (nearly) all citizens must buy an insurance contract, it goes beyond ‘adjust[ing] by rule or method,’” which is how “to regulate” has been defined. To adjust by rule or method is not to bring the product of commerce into being, but, rather, to assume its existence.  Instead of being considered a regulation affecting commerce between the states, the core element of the Affordable Care Act of 2010 survives in the decision as a penalty under “Congress’s enumerated power to ‘lay and collect Taxes.’ (Art I, sec. 8, clause 1).” Essentially, Congress has the authority to tax people who decide to go without health insurance. From Robert’s opinion for the Court, “the mandate can be regarded as establishing a condition—not owning health insurance—that triggers a tax—the required payment to the IRS. Under that theory, the mandate is not a legal command to buy insurance. Rather, it makes going without insurance just another thing the Government taxes . . . And if the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance, it may be within Congress’s constitutional power to tax” (p. 32). This reasoning essentially saved the Act.

To be sure, the Court did not allow the Affordable Care Act to survive intact. Besides invalidating the rationale for the mandate under the commerce clause, the decision holds that states can refuse to go along with the expansion of Medicaid under which more of the poor, who are not able to afford insurance for lack of income, are to be included in the program. At the time, “the Medicaid program required states to cover only certain discrete categories of needy individuals—pregnant women, children, needy families, the blind, the elderly, and the disabled.” There was no mandatory coverage for most childless adults. In the expansion, all individuals under the age of 65 with incomes below 133 percent of the federal poverty line are covered.

It can be asked whether people who cannot afford insurance at all will be able to be covered by the expanded Medicaid program, given that the decision enables states to refuse the expansion. In its decision, the Court ruled that Congress cannot withhold the existing Medicaid funds of states that refuse to go along with the change. In her statement from the bench, Ginsburg noted that "seven members of the Court . . . buy the argument that prospective withholding of anticipated funds exceeds Congress' spending power." In other words, Congress cannot use its spending power to threaten states.  In his majority opinion, Chief Justice Roberts points out that Congress can offer additional grants to states—essentially bribing them into going along with the expansion—but a state’s existing Medicaid funding cannot be threatened.

House Minority Leader Nancy Pelosi (D-Calif.) reacted to the ruling by opining that, nonetheless, the states would find the Medicaid funds hard to resist. “A big expansion of Medicaid is part of this bill, as you know, and in order to make it saleable and tactical, we have 300 percent of the benefits described in this bill paid for in Medicaid to the states those first three years of the bill. I don't think the governors will turn that down,” she said. "First of all, the people will have the need; the urgency is there. They don't have to have any matching funds. . . . I believe that once this bill is rolling and states experience the benefits of it, it will be very hard for a state to say, ‘I'm not taking 100 percent of the coverage that Medicaid would provide for these people.’ That's our thinking on the subject," she added. She did not say, however, that after 2016 the states could have to pick up as much as 10 percent of the cost of the expanded benefits. Moreover, she did not address the possibility that ideology could trump even the financial incentives. 

Indeed, some Republican Governors were already holding back from saying whether they would accept the Medicaid funds. One Republican governor, Florida's Rick Scott, didn't waste any time in coming out against the expansion on the grounds that the government of Florida could not afford the increase. "Florida will opt out of spending approximately $1.9 billion more taxpayer dollars required to implement a massive entitlement expansion of the Medicaid program," the former health care executive said. At the time, roughly 4 million of 19 million Floridians lacked health insurance. That's a bit more than 20 percent of the population. To be sure, Scott acknowledged that for three years, from 2014 to 2016, the federal government would pay all the costs of the expansion, but after that, "the burden increasingly shifts to Florida taxpayers." Of course, those taxpayers are also U.S. taxpayers, and in this capacity they would be contributing to the expansion in other states beginning in 2014, without any benefit going to themselves. 

Thinking along such lines, Jacob Lew, the White House chief of staff at the time, predicted that the "vast majority of the states will come in. For those few that are slow to come in, they're going to have to answer to people why they're turning this down and why they're letting people go without coverage." However, Republican Governors such as Scott could appeal to other priorities, especially those that are favored by voters who already have health insurance. Accordingly, Scott argued that Medicaid was "growing three and a half times as fast as Florida's general revenue," and was already taking away money needed for education. In effect, Scott was already building an electoral majority with an interest in letting 20% of the population in Florida continue without health insurance. 

Accordingly, the Democratic leaders in the federal government may have been overly optimistic in assuming that universal coverage in these United States would result from the law. To be sure, some of the states that had Republican governments at the time would probably "flip over" to the Democrats at some point. It would be difficult for a later Republican governor to take the expanded benefits away. Even so, Scott's ideological preference for education over an expansion in medical entitlements for the poor can be expected to be more popular in some of the American republics than in others. The U.S. itself is a veritable empire, both in terms of territory and in being a union of republics. A one-size-fits-all federal law that involves ideological preferences is thus suboptimal. In other words, it makes perfect sense that states should be free to opt out of the expansion of Medicaid (i.e., as per their respective ideological preferences). There is, however, a cost, which is borne more by some than others.

Republican Governors Rick Scott (FL), Scott Walker (WI) and Bobby Jindal (LA)

Were other states, like Louisiana and Wisconsin, to say “thanks but no thanks” to the expansion, the Affordable Care Act would fall significantly short of providing universal health insurance. In the states without the expanded Medicaid, the poor people would presumably not be able to afford individual health insurance (which does not have the required cost advantages of group plans), and yet the mandate would apply so they would be subject to the tax imposed on people who do not have health insurance. The 4 million uninsured Floridians would find themselves suddenly subject to an annual tax collected by the IRS were they unable to afford the premiums for private individual insurance. Scott may really have been putting poor Floridians in dire straits. At the very least, Congress could exempt them from the tax, even if doing so would give other states more of an incentive to balk on the expansion.

As a guiding principle, Congress should encourage rather than thwart state-choice, restricting it when necessary to preserve the Union, even as Congress also provides minimum U.S.-wide protection to the minority position in any state so the people don't fall through the cracks. To fortify federalism without leaving the most vulnerable out in the cold in terms of health-care, the Congress could establish a minimum level of sustenance as a basic human right deserved by any American citizen. Given their sovereignty retained, the fifty American republics could decide for themselves whether to go beyond the “basic common 'human' denominator.” The federal government would be directly responsible for the floor, with the states having as their own programs anything above the foundation.

Sources:

National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al., 567 U.S. Supreme Court (2012).

Alex Becker, "Obama Health Care Law: Republican Governors, Legislators Not Ready to Fully Commit," The Huffington Post, June 30, 2012. 

Robert Pear, "Republican Governor of Florida Says State Won't Expand Medicaid," The New York Times, July 2, 2012.  

Amanda Terkel, “GOP Governors Resist Implementing Obama’s Health Care Law Despite Supreme Court Ruling,” The Huffington Post, June 29, 2012. http://www.huffingtonpost.com/2012/06/29/gop-governors-obama-health-care_n_1637456.html

Subsidiarity: Federalism Over Catholic Social Ethics?

In the E.U., the principle of subsidiarity functions in theory like the Tenth Amendment does in the U.S.—again in theory. In both cases, public authority on a given domain or policy-area is preferentially to be exercised at the state rather than federal level. The principle, while not federalism per se, can be an element of it. Taking subsidiarity to be “really federalism” turns the latter into an alliance—giving the states potentially so much power that the government of the federation or union itself cannot act as a check on the state governments.

The complete essay is at Essays on Two Federal Empires.

Wen and Obama: Breaking Up the Banks

Chinese Premier Wen Jiabao told a radio audience on April 3, 2012 “that China’s state-controlled banks are a ‘monopoly’ that must be broken up.”[1] He also urged other businesses to get into the financial sector. “Let me be frank,” he said. “Our banks earn profit too easily. Why? Because a small number of large banks have a monopoly. To break the monopoly, we must allow private capital to flow into the financial sector.”[2] This included raising the total amount foreigners can bring into China under the Qualified Foreign Institutional Investor program to $80 billion.

The full essay is at "Wen and Obama: Breaking Up the Banks."

1. Dinny McMahon, Lingling Wei, and Andrew Galbraith, “Chinese Premier Blasts Banks,” The Wall Street Journal, April 4, 2012.

2. Ibid.