Heritage Foundation's Ernest Istook Runs Circles Around Testy Ed Schultz Parroting Party Line

If you aren't familiar with liberal radio host and MSNBC action hero Ed Schultz, you are about to encounter the quintessence of the man.

Schultz made the mistake of allowing a guest on his radio show Tuesday who knew what he was talking about. And as the conversation proceeded between Schultz and former Republican congressman Ernest Istook of Oklahoma, now with the Heritage Foundation, it became obvious that Schultz didn't have a clue (click here for audio) --
SCHULTZ: OK, give us your new information from the Heritage Foundation on health care. Tell us how screwed up the Democrats are on that.

ISTOOK: Well, you know, I think this may be in the category of unintended consequences, although frankly it may be part of the cost control. As we've been going through this 2,000 pages that have been brought up for debate in the US Senate, evidently the penalties that they put upon employers if their, the people who work for them go into this public plan, this so-called insurance exchange ...

SCHULTZ: Don't tell me they're going to jail! Please ...

ISTOOK: No, this is not about that.

SCHULTZ (laughs): OK.

ISTOOK: This is, the penalty if you are an employer and you hire someone who then receives the federal subsidy because of their family income, you as the employer, the penalty can be $3,000 for each worker that you hire. Here's the difficulty, Ed. It makes it more costly for a company to hire somebody such as a single mother with small children who may need the job the most of all. It makes it more expensive for a company to hire them than it does to hire someone, for example, who is married and has multiple sources of income for their household because the subsidies are based upon household income. The unintended consequence of this could be that the people who most need work will have the biggest difficulty in finding it.

SCHULTZ (pause): I tell you what, you guys have really, uh, dug something up over at the Heritage Foundation on that one.

ISTOOK: No, we didn't write the bill.

SCHULTZ (guffaws): There is, congressman, if people break the law there's going to be a fine, that's basically what you're saying.

ISTOOK: Well, I'm not talking about that aspect ...

SCHULTZ: .... That's if the mandate, that's if the mandate is accepted in conference committee. I mean, we're still, I mean, there is, there's no guarantee that there's going to be any fines anywhere.

ISTOOK: Well, again, this, are you telling me that there's no guarantee that the main parts of the bill will go through? This is what they call the provision to stop what they call free riders, people that receive their health care through this government system that would be set up there and they're saying if you as an employer have people who work for you who receive their health care in this fashion, you as the employer are going to have to pay extra into this system to the tune of approximately $3,000 per worker per year.

SCHULTZ: No! Ernie, that's not true!

ISTOOK: Well, all you have to do is read the bill.

SCHULTZ: This is going, this is going to reduce the cost to small businesses across America.

ISTOOK: Surprise! The small businesses don't believe you, Ed.

SCHULTZ (chuckles): OK. Wow.

ISTOOK: Again, I mean ...

SCHULTZ: I can't take all this misinformation! I can't take all this misinformation, I can't! I don't know what you guys do over there at the Heritage Foundation. Go to lunch! (they both laugh, awkwardly) This is, this is going to relieve small business. This is one of the attacks that the Democrats have got to come up with on the Senate floor, is that the Republicans, you're not for small business. If someone's under $90,000 a year and works for a company of less than 50 employees, and that's the majority, that's over 95 percent of employees in this country are in that category, this is going to help, you know, Ralph's Radiator Garage. There's no ...

ISTOOK: Ed, rather than read Democratic talking points I suggest you read the bill.

SCHULTZ: That's a fact! That's a fact! That's an absolute fact! This is going to help small businesses! For you folks over at the Heritage Foundation to come out and say, well, you're gonna get fined! For what?!

ISTOOK: Ed, the fines and the penalties are in the legislation. And ...

SCHULTZ: You send me the page. It is not there! (pause) Ernest, gotta run, always a pleasure.

ISTOOK: Ed, I'll send that to Vern (Schultz coat-catcher). We'll talk to you more about this and beware of these unintended consequences.

SCHULTZ: All right (laughs)

ISTOOK: Thanks, Ed (call ends)

SCHULTZ: Man, I don't know what they do over there at the Heritage Foundation. They just make this stuff up! I am a small business owner!   

Allow me to steer the befuddled, bellicose Schultz in the right direction. Here is a link to the Senate health bill, H.R. 3590. After a bit of digging, I found what appears to be the provision Istook refers to, written in such dense legalese that current or former members of Congress are needed to decipher it.

In Part II under "Employer Responsibilities," sections 1511-1513, on page 350 under (c), the bill refers to "Large Employers Offering Coverage With Employees Who Qualify for Premium Tax Credits or Cost-Sharing Reduction. --

(1) In General. -- If --

(A) an applicable large employer offers to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A(f)(2)) for any month, and

(B) 1 or more full-time employees of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee,

then there is hereby imposed on the employer an assessable payment equal to the product of the number of full-time employees of the applicable large employer described in subparagraph (B) for such month and 400 percent of the applicable payment amount.

And what pray tell is the "applicable payment amount"? Here is how it is defined, at the top of page 352 --

(1) Applicable Payment Amount. -- The term 'applicable payment amount' means, with respect to any month, 1/12 of $750.

Or as described in the world beyond Capitol Hill, $750 annually. And by my calculations, 400 percent of that comes to $3,000 a year.

One of Istook's colleagues at Heritage, Robert Book of  The Foundry blog, fleshed it out in a Nov. 19 post titled "The Senate Health Bill: How the Mandates Kill Jobs and Punish Poor Workers" --

Companies with more than 50 employees are required to offer qualified health plans -- with a benefit package to be defined later by bureaucrats -- to their full-time employees or pay a tax of $750 per full-time employee. That's a lot cheaper than providing health insurance, and the $750 is just a tax -- it doesn't count towards the employee's premium.

However, an employer who does offer qualifying insurance isn't entirely off the hook. Suppose an employer offers insurance, but has an employee from a low-income family who qualifies for a premium subsidy in the "health insurance exchange" and decides to accept it. In that case, the employer is stuck with a tax penalty of $3,000 for that employee, and every other employee who qualifies and makes the same choice -- unless it's more than a quarter of the employees, in which case the tax is capped at $750 times the total number of full-time employees. (Workers will be permitted to opt out of their employer's plan only if they qualify for a subsidy, have insurance through another family member, or their employer covers less than 60 percent of the premium.

Hurting the Poor. In other words, if a company has a lot of low-income workers, they can save money by dropping their health plan and just paying the $750 per-employee tax. (And they can make as many employees as possible part-time.) However, if they have mostly middle-income workers, they face a heavy penalty -- $3,000 -- every time they hire a worker from a low-income family. This goes by the employee's family income, not the income the employee is paid by any particular company. So a company could save $3,000 by hiring, say, someone with a working spouse or a teenager with working parents, rather than a single mother with three children.

Even worse, if at least a quarter of the employees qualify for a premium subsidy based on their income and family size, the company is going to end up paying the same $750 per-employee tax -- whether they offer insurance or not! So companies with a lot of low-income employees will essentially be encouraged to drop their health plans entire, dumping the remaining higher-income employees into the federal exchange at their own expense.

Seriously bad policy. In other words, employees will have a strong tax incentive to lay off the workers who need the jobs most -- people without other sources of income.

How will employers know who those workers are? The federal officials will tell them when they send the tax bill (Section 1412).

After the conversation with Istook, it was clear from Schultz's anger that Istook had gotten under his skin (here for audio) --

SCHULTZ: Why am I giving him airtime?  Because you have to know what the arguments are. My God, stop sending me that crap! IT'S WHERE AMERICA COMES TO TALK! IDIOT! (creepily lowering voice) Hi, welcome back to the Ed Schultz show (pause) Let's go to Dave in Atlanta.

CALLER: Ed, it's just unbelievable, Mr. Heritage Foundation there, I mean ...

SCHULTZ  (interrupts, bellowing): What does that tell you?! That's why I had it on! Excuse me, but what does that tell you about the Heritage Foundation?! (lowers voice for effect). They still lie.
And Schultz waits until a guest departs before calling him a liar. You stay classy, Ed.
Jack Coleman
Jack Coleman
Ex-liberal from People's Republic of Massachusetts