The bill includes a number of attempts to undermine health reform, some of which are unconstitutional, others of which are merely unwise. The most insidious provision of the bill, however, is this:
A South Carolina resident taxpayer who is subjected to a tax by the Internal Revenue Code under 26 U.S.C. Section 5000A of the Patient Protection and Affordable Care Act shall receive a tax deduction in the exact amount of the taxes or penalty paid the federal government pursuant to 26 U.S.C. Section 5000A. The tax deduction allowed by this section must be used in the year the federal tax or penalty is paid.
“26 U.S.C. Section 5000A” refers to the so-called individual mandate that was the primary subject of a losing attempt to convince the Supreme Court to repeal Obamacare last year. That provision works by requiring people who are not insured to pay slightly more income taxes in order to give them an incentive to buy insurance. Such an incentive is necessary because the Affordable Care Act also prohibits insurers from denying coverage to people with preexisting conditions. So if people did not have a financial incentive to buy insurance before they get sick, they would wait until they got sick to buy insurance, and would eventually drain all the money out of an insurance plan that they paid virtually nothing into.
The South Carolina bill would erase this incentive by effectively having the state refund taxpayers hit with additional taxes because they did not purchase insurance. What the federal government takes, the state of South Carolina would give back. As a result, smart South Carolina residents would soon figure out that they can drop their insurance plans, save the cost of paying premiums, and then pick those plans back up the minute they are about to be hit with an expensive medical bill. Beginning in the 1990s, seven different states passed laws allowing health care consumers to behave this way, and it ended in disaster every single time. Some consumers saw their premiums rise over 350 percent. Others lost access to individual insurance plans entirely.
Beyond the fact that this bill could literally collapse the individual health insurance market in South Carolina, it is also a tribute to fiscal irresponsibility. By giving a tax deduction to South Carolinians who do not carry insurance, the state is essentially paying people to free ride. That’s money, by the way, that will not go to hiring teachers or putting cops on the streets or building schools because it is being diverted to this crusade against Obamacare.
The good news is that this misguided scheme is likely to be struck down in federal court. Under longstanding constitutional law, federal law invalidates state laws that “stand . . . as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Since the sole purpose of this South Carolina bill is to undermine a federal health care law, it should be struck down by the courts.
Even if this scheme is eventually struck down, however, it could do a great deal of damage in the interim. If the bill becomes law, it will mistakenly lead many South Carolinians to believe that they can forgo insurance without consequence. As a result, the cycle of healthy people dropping insurance coverage until they are sick will begin and could continue for months or even years until a final court decision strikes the law down.