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Rube Goldberg Could Not be Reached for Comment

November 30th, 2012 - 9:39 am

Cato’s Michael Cannon thinks ObamaCare is still vulnerable, because of its structural flaws:

Contrary to expectations, more than 30 states have refused to create exchanges or are dragging their heels. And with good reason: State-created exchanges bring higher taxes.

The very tax credits that are contingent on states implementing an exchange are also an essential part of the trigger mechanisms for the law’s penalties on employers and individuals who don’t purchase health insurance. Since those tax credits are only available through state-created exchanges, states can exempt their employers from penalties of up to $2,000 per worker simply by not creating exchanges. By my count, states can collectively exempt 18 million Americans from other penalties that, by 2016, will reach $2,085 on families of four earning as little as $24,000. California could exempt all employers and 2.6 million residents from those penalties just by scuttling its exchange.

The repercussions would be tremendous. The purpose of those credits and subsidies is to hide the cost of the law’s mandates and regulations. Blocking them would not increase the law’s costs; it would reveal those costs to insurers and consumers. Under those circumstances, even vulnerable Democratic senators probably would demand that Congress reopen the law. That seems rather likely: 14 states have enacted statutes or constitutional amendments that explicitly prohibit state employees from even assisting in the imposition of such penalties, a key function of an exchange.

To be sure, the Internal Revenue Service is trying to impose those penalties even in states that don’t create exchanges. Oklahoma’s attorney general has sued to stop them, and additional lawsuits probably will follow.

If any such lawsuits prevail, employers will flee states like California that have created exchanges to seek refuge in states such as Arizona, where those penalties do not apply.

A couple of things come to mind. The first is, almost three years after the law was passed, we’re still learning just how epic its powers of destruction are. The second? That’s not a bug; it’s a feature.

I don’t share Cannon’s optimism, either. Margaret Thatcher’s “ratchet effect” is in full force here, and this is one hell of a big ratchet.

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