Suspend Obamacare Rules Until SCOTUS Decision

Wednesday, 02 Feb 2011 01:56 PM

By John Berlau

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Monday’s decision by Florida federal judge Roger Vinson striking down the Patient Protection and Affordable Care Act — also known as Obamacare — in its entirety was a huge and welcome victory for constitutional liberties.

As my colleague Hans Bader, who along with Competitive Enterprise Institute General Counsel Sam Kazman filed an amicus brief in the case on behalf of the governors of Minnesota and Rhode Island, wrote on the ruling, “Judge Vinson rightly declared the healthcare law’s individual mandate unconstitutional, since the inactivity of not buying health insurance is not an ‘economic activity,’” and “correctly noted” that “the individual mandate provision also was not ‘functionally’ severable from the rest of the law.”

But although the ruling is clear, a major point about its effect is still up for debate. To what degree is the healthcare law void until a higher court rules on it?

At first, Obamacare supporters expressed relief that Vinson didn’t issue an injunction, but a closer reading of the decision indicates the judge believed the “declaratory relief” he issued makes the law unenforceable.

The Cato Institute’s Ilya Shapiro argues that “declaratory judgment is, in a context such as this where federal officer are defendants, the practical equivalent of specific relief such as an injunction.”

So, in the spirit of recent discussion about bipartisan initiatives to root out counterproductive regulations harming the economy, here’s a suggestion. Until the Supreme Court issues a ruling, the Obama administration should suspend enforcement of the regulations from the Affordable Care Act that have proved to be the most burdensome to doctors, entrepreneurs, consumers, and savers and investors.

The administration could do this in much the same way that it publicly stopped enforcement of federal marijuana laws against users of medical marijuana in contravention of state law (an action that I supported).

The top two regulations of Obamacare with the most widespread burden on the general public are:

1. The requirement that businesses file form 1099 for any single purchase in which a vendor is paid $600 or more.

2. The stealth “medicine cabinet tax” that prohibits consumers for purchasing over-the-counter drugs — including pain relievers, prenatal vitamins, and Pedialyte for kids — with their flexible spending accounts and health savings accounts unless they go through the cumbersome process of getting a doctor’s prescription.

The 1099 rule shouldn’t be a problem for the Obama administration to suspend.

After initially opposing an amendment by Sen. Mike Johanns, R-Neb., to repeal the measure last year, the president enthusiastically called for scrapping the mandate in his State of the Union address last week. Democrats such as Michigan Sen. Debbie Stabenow have followed his lead in saying they wish to repeal it.

Vinson, in fact, cited the 1099 rule in his decision as an example of a provision of the law that had gotten bipartisan criticism and may not have been enacted if not for the need to raise revenue from the core provisions of the law.

Sen. Johanns has shared powerful examples of how the rule is harming small entrepreneurs in Nebraska and across the country. A small fire truck manufacturing company told him the rule will cost the firm an extra $23,000 in accounting fees.

A restaurant owner says the rule “forces me not to hire local vendors” and instead go through a “single regional contractor.”

The “medicine cabinet tax” on HSAs and FSAs has created a similar paperwork burden as well as outright confusion about how to comply with the law. Requiring a prescription defeats the purpose of over-the-counter drugs.

The number of prescriptions that consumers have to request and doctors have to write and renew could likely go up more than tenfold. That is, if consumers simply don’t decide to get the prescription drugs that may now be cheaper for them to buy, but more expensive to the healthcare system.

As an editorial in the San Jose Business Journal puts it, “No one is going to pay for the doctor’s visit, spend time in the doctor’s office, or schedule time off work to accomplish this.”

Retailers also face a big burden. Payment systems were already programmed with a list of eligible OTC drugs for medical account debit cards to prevent cheating with these accounts, alleviating one of the concerns this provision supposedly addresses.

But now, cashiers may have to play the role of pharmacists in verifying a prescription, a process that will likely add substantial costs in time and money, resulting in price increases across the board for retail items.

Although the 1099 rule and medicine cabinet tax can both be ended before full repeal of the healthcare law, it should be remembered that they were enacted because of the flawed process of ramming this bill through Congress.

Both are gimmicky revenue “offsets” done so the Congressional Budget Office would technically score Obamacare as reducing the deficit, and score repeal of the law or even of these individual provisions as increasing it.

Washington Post blogger Ezra Klein, a chief cheerleader of the law, scolds that by going after the 1099 rule and flex limits, "GOP looks to make Affordable Care Act less fiscally responsible.” (Though in the same column, Klein said he would “reform” the 1099 rule, but wasn’t specific on how to do this.)

However, experts looking at these provisions have said they will have a negligible effect on the deficit, and, particularly in the case of the OTC drug rules, may even increase it.

IRS National Taxpayer Advocate Nina Olson has stated that the rule’s “new reporting burden . . . may turn out to be disproportionate compared with any resulting improvement in tax compliance.”

The IRS already has ways to track vendors’ income without this rule, and Olson added that the rule could “be a burdensome task . . . for the IRS itself,” requiring substantially more spending to enforce it.

As for the OTC drug rules, if they shift folks with HSAs and FSAs toward more expensive prescription drugs, government and private sector costs could explode by the billions.

As I have noted previously, a 2005 study in the American Journal of Managed Care found that the Food and Drug Administration’s clearing of antihistamines such as loratadine (Claritin) for over-the-counter sale saves about $4 billion a year in healthcare costs.

These savings could be wiped out if patients are discourage from buying OTC drugs, and there would also be the added costs of the doctor’s visits to get the prescriptions.

Many of these costs would be absorbed by the government, which under the law is subsidizing healthcare plans for individuals with income up to 400 percent greater than the poverty level. This would, of course, greatly add to the deficit.

So for fiscal reasons and to remove burdens from consumers and entrepreneurs, Congress should repeal these rules, waiving the technical pay-as-you-go rules if necessary.

In the meantime, the Obama administration should suspend enforcement of these and other burdensome rules until there is a ruling on constitutionality of the law in its entirety from the Supreme Court.

John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute. He blogs at OpenMarket.org.

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