Is the Affordable Care Act on Life Support? Maybe.

Here's my quick take on this and why I think the Supreme Court will agree with DC Circuit Court of Appeals and strike a lethal blow to the Affordable Care Act. 

In short, section 1411 of the Affordable Care Act specifies that premium assistance can only be given to exchanges established by a State under section 1311. An exchange established by the Federal Secretary of Health and Human Services under section 1321 does not qualify according to the letter of the law. But when the IRS issued implementing regulations the agency interpreted "established by the State" to mean any exchange operating in the State.

That's the point of contention. Today, the DC court said the IRS overstepped its authority and violated the clear letter of the law. The 4th Circuit disagreed and said section 1401 is "ambiguous" and as such the IRS was free to interpret the true meaning and the courts should defer.

I really don't think that the 4th Circuit's "ambiguous" argument will pass muster in the Supreme Court. A 5 vote majority would likely decide that section 1411 was not ambiguous and not even in error as the wording is repeated in the Definitions section of the Affordable Care Act. So twice, Congress stipulated that subsidies were only available to those who enrolled in an exchange established by the State under section 1311.

If this is upheld by the Supreme Court then much of the Affordable Care Act and the attempt to reach near-universal coverage will essentially die. There are over two dozen states that never established exchanges and millions in those states would lose their subsidies and then their insurance. And there would be no bare bones, low cost alternatives available because of the minimum benefit standards established by the law.

It would be a nightmare, but a nightmare of Congress' making. All of the normal procedures for legislating were pushed aside in the push to enact the law after losing the filibuster-proof majority in the Senate. No amendments were allowed, no conference committee appointed, no opportunity to look for problematic language. I warned of this back in March of 2010 in a post titled "Why Process Matters" in which I wrote of the Affordable Care Act "It will face years of legal challenges and likely deeply entrenched public opposition. Worse, the manner in which the bill is being pushed may allow for errors or inconsistencies in the law that could weaken or undermine it in unanticipated ways. The normal process may cause delays and be fraught with obstacles, but it exists to protect the public and to promote sound legislation.

Suddenly the 2014 midterms take on a new meaning. If the Supreme Court does strike down the subsidies Obama may have to go to a GOP House and Senate to seek a legislative solution. I expect they extract a heavy price.


Below are key excerpts from the law with certain crucial sections highlighted.

The key comes down to the use of the word "State" in SEC. 1401. REFUNDABLE TAX CREDIT PROVIDING PREMIUM ASSISTANCE FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN. Which explains, "Premium assistance amount.--The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of-- `(A) the monthly premiums for such month for 1 or
                more qualified health plans offered in the individual
                market within a State which cover the taxpayer, the
                taxpayer's spouse, or any dependent (as defined in
                section 152) of the taxpayer and which were enrolled in
                through an EXCHANGE ESTABLISHED BY THE STATE under 1311
                of the Patient Protection and Affordable Care Act."

Section 1311 specifies all the ways in which a State can establish an exchange. At no point in Section 1311 is the Federal Exchange ever mentioned.

The Federal Exchange is first mentioned several sections later in SEC. 1321. STATE FLEXIBILITY IN OPERATION AND ENFORCEMENT OF EXCHANGES AND RELATED REQUIREMENTS.

Which reads:

Failure To Establish Exchange or Implement Requirements.--
            (1) In general.--If--
                    (A) a State is not an electing State under
                subsection (b); or
                    (B) the Secretary
                determines, on or before January 1, 2013, that an
                electing State--
                          (i) will not have any required Exchange
                      operational by January 1, 2014; or
                          (ii) has not taken the actions the Secretary
                      determines necessary to implement--
                                    (I) the other requirements set forth
                                in the standards under subsection (a);
                                or
                                    (II) the requirements set forth in
                                subtitles A and C and the amendments
                                made by such subtitles;
       THE SECRETARY SHALL (directly or through agreement with a not-
        for-profit entity) ESTABLISH and operate such Exchange within
        the State and the Secretary shall take such actions as are
        necessary to implement such other requirement."

So there you have it. The law clearly says that subsidies are available to those enrolled in exchanges established by the State as the language regarding the federal exchange comes several sections later and refers to the Secretary establishing it...

The court is being presented with a case of the letter of the law v. the intent of the law. If a court thinks the letter is clear it will trump the intent.

In Maryland Speech, Obama Promised No Changes for Individual Market Plans

Let me preface this post by stating something that some new readers may not know, I supported the Affordable Care Act when it was passed in 2010. I continue to support substantial portions of it, especially the use of tax credits and insurance exchanges to extend coverage to the uninsured. That said, I consider the substantial disruption of the Individual Health Insurance Market to be an unacceptable outcome. As pointed out I my last post, the original legislation grandfathered most existing plans, but when the Department of Health and Human Services published implementing regulations they made the grandfather restrictions so severe that their own estimate was the decimation of the Individual Market. It serves no purpose, it is not essential for the law's success, it is paternalistic and cruel. I am also outraged by the fact that the President continued to promise people they could keep their existing plans long after who knew it wasn't true. On a recent trip to Maryland, the President once again made his all to familiar pledge.

As the news on millions of cancellation notices continues to grab headlines, the White House and sympathetic supporters have been trying to pretend that President Obama never actually promised that Americans could keep their existing health plans. The President himself has suddenly claimed that he always told people there would be exceptions to his promise... too bad that he never actually told people there would be exceptions. And the President kept making that promise even after his own Department of Health and Human Services published predictions in the Federal Register acknowledging that upwards of 10 million Americans will see their existing coverage cancelled.

President Obama brought his promise to Maryland on Sept. 26 in a speech meant to tout the soon to launch healthcare.gov website. In his speech, he repeated the claim that people could keep their existing insurance. What makes this speech different is that he made specific reference to the individual market.

"Now, let’s start with the fact that even before the Affordable Care Act fully takes effect, about 85 percent of Americans already have health insurance -– either through their job, or through Medicare, or through the individual market.  So if you’re one of these folks, it’s reasonable that you might worry whether health care reform is going to create changes that are a problem for you -- especially when you’re bombarded with all sorts of fear-mongering.
So the first thing you need to know is this:  If you already have health care, you don’t have to do anything.  In fact, for the past few years, since I signed the Affordable Care Act, a lot of you have been enjoying new benefits and protections that you didn’t before even if you didn’t know they were coming from Obamacare."

The Maryland speech marks one of the few times the President made a specific reference to folks in the Individual Market and he clearly implied promised "If you already have health care, you don’t have to do anything." No caveats. No reference to plan changes. Just a promise. A completely untrue promise that he knew to be untrue at the time he made it. It's hard to explain how a President could tell folks that they "don't have to do anything" when his own folks tolk him that roughly 10 million of those people on the individual market would have to find new coverage.

*** I've actually received emails from folks arguing that nothing in the excerpted paragraphs could possibly be interpreted as a promise that folks could keep their existing coverage. Seriously. Sorry, folks, the reality is there's simply no other way to read those paragraphs other than as just such a promise.

The Obama Administration's Disingenuous Reaction to Canceled Policies

Let me start by saying that I support the goal of universal health coverage and I supported most aspects of the Affordable Care Act as passed by Congress (though I never accepted a commerce clause power to impose an individual mandate - I'm perfectly comfortable with the mandate operating as a tax penalty). That said, I continue to be troubled by the impact of the Affordable Care Act on the individual market. But I'm bothered more by the disingenuous response from the Obama administration - they're claiming that individual plans were grandfathered and are being canceled by the choice of the insurers. This is not correct. The actual legislation did have  a grandfather provision that should have allowed people to keep their insurance - as the President repeatedly assured the public.

But the implementing regulations (see page 34560), as written by the U.S. Department of Health and Human Services, altered the grandfather provision such that any changes to a grandfathered plan, as small as a $5 increase in co-pays, would require that the plan meet the minimum requirements of the ACA. Plans change yearly - co-pays, deductibles, premiums - so the regulations essentially guaranteed that most grandfathered plans would be canceled by the time of implementation. The proof of this can be found in the regulations as published in the Federal Register. The Department of Health estimated that 50-75% of the 14 million people with insurance on the individual market would lose their coverage. So it's simply untrue for the Administration to deny responsibility - the regulations came from the Executive branch and because they are regulatory and not legislative they could be undone by the Administration. It was a conscious choice to have these insurance plans disappear. And the President continued to assure people they could keep their existing plans even after the estimate of 50-75% cancelation of coverage for the 14 million in the individual market was published. 

 

The other argument from the administration is that these folks who lose their existing coverage will now receive much better coverage than they did under the canceled plans. But this better coverage comes at a price and in many cases very severe price increases. Some of the people will qualify for subsidies while others won't. And premium increases are so steep in some cases that even with the subsidy out of pocket costs will be higher. Of greater concern are the very high deductibles allowed by the ACA. So many people are now facing higher premiums AND thousands in deductible costs. High deductibles have been shown to discourage health care utilization - challenging the claim that people will be better covered.

 

Then there is the argument that folks will get subsidies. The subsidies come in the form of tax credits. Folks have two choices - they can wait until they file their taxes and receive a lump sum subsidy OR they can have the government send the money from the estimated credits to insurers each month. Under option one, you're required to shoulder the full cost throughout the year and then get repaid at tax time (without interest). Under option two, you must estimate your income for the year and then your monthly subsidy will be based on the estimate. If you underestimate, you will be required to repay the government come tax time. Many of the folks in the individual market are self-employed and therefor lack easy to predict income.

The subsidies phase out as income rises and any person earning more than $46,000 per year, or a family earning more than $94,000, receives no subsidy. NBC news provided the example of George Schwab of North Carolina - his existing plan for he and his wife cost $228 per month, but it was canceled. The best price he's been able to find so far is $948 per month. According to the subsidy calculator provided by the Kaiser Family Foundation even if Schwab and his wife earned as little a $45,000 per year - combined - the subsidy would bring the cost of their new plan down to $368 per month. That's a 50% increase even after the subsidy - assuming they earn no more than $45,000 per year. If they earn $55,000 per year their premium costs, after subsidy, would nearly double. The Schwabs would need to have combined earnings of $35,000 per year or less to qualify for a subsidy sufficient to bring the cost of their new plan below that of their canceled plan.  And none of this takes into account the fact that minimum coverage plans allowed under the affordable care act have large deductibles.

 

Based on the Administration's own estimates, the coverage of upwards of 10 million people will be disrupted. The ACA will extend coverage to 32 million of the roughly 50 million uninsured - this is a laudable accomplishment. But to me, the extension of new coverage does not justify the disruption of so many existing plans. Especially given that the disruption of those plans is not essential to the ACA. In fact, it increases the overall cost of the law due to the new subsidies unanticipated during the legislative stage. And these subsidies will simply serve to enrich insurance companies.

 

Legislation is set to be introduced in the House to overrule the regulations and reinstate the grandfather provision. But I doubt Harry Reid will allow a vote in the Senate and at this point, many plans have already been canceled. Ten Democratic Senators have signed a letter requesting a delay of the individual mandate. This should be done to allow time to sort out some of these serious problems. Unfortunately the GOP stance appears to be "no help to fix the law" and the Democratic approach appears to be no willingness to acknowledge this very serious problem. So 10 million Americans will continue to receive cancelation notices.