All King v. Burwell, All the Time

What Congress and the States Should Not Do

It is critical that any response at the federal or state level not prop up or strengthen the ACA’s troubled framework. Therefore:

Congress should not preserve the flawed ACA subsidy scheme. Congress should not perpetuate the complex and costly subsidies in the ACA. The design of the subsidies creates major financial incentive for millions of Americans to shift to plans that qualify for the new subsidies; it involves additional rules, restrictions, and penalties; and is administratively complicated.

States should not adopt state exchanges. States should not pursue efforts to adopt a state exchange. States gain no meaningful flexibility from administering the exchanges, while their long-term costs fall squarely on the states–as any state implementing a state exchange must develop its own revenue source to fund the exchange’s annual operations.

What Congress and the States Should Do

Federal Action: Congress should exempt individuals, employers, and insurance plans in states that have no state exchange from the ACA’s costly rules, regulations, and mandates. The exemption should include items such as the ACA’s rating rules and benefits mandates, as well as formally exempting residents of the affected states from the individual and employer mandates, among others. As is evident from basic premium analysis, in many of the potentially affected states, the cost of coverage was less before the ACA.

State Action: States should pass pre-emptive legislation that would ensure a smooth transition from ACA-compliant plans to state-regulated coverage. States should take the opportunity to review and assess their pre-ACA rules and regulations with attention to making coverage more affordable and available. Action taken in 2011 by the state of Maine provides a template for such pre-emptive legislation. States should consider more flexible rating rules, more affordable benefit packages, more competition through state reciprocity agreements, and other changes that help to facilitate more choice and competition while retaining or restoring pre-ACA portability rules and consumer protections.

King focuses on the subsidies that help people pay increased premiums, one ACA pillar that the administration has toppled. Because Congress couldn’t constitutionally command states to establish exchanges, it authorized these credits for people who buy insurance “through an Exchange established by the State.” If a state didn’t establish an exchange, its residents–who would instead use the federal exchange Healthcare.gov–wouldn’t be eligible for subsidies.

But a funny thing happened on the way to utopia: Only 14 states set up exchanges, meaning that the text of the law denied subsidies in nearly three quarters of the states. This result was untenable to an administration intent on pain-free implementation. And so the administration engaged in its own lawmaking process, issuing an Internal Revenue Service rule that nullified the relevant ACA provision, making subsidies available in all states.

As documented in a detailed 2014 report by the House Oversight Committee, at least one Treasury Department official recognized that there “was no direct statutory authority to interpret federal exchanges as an ‘Exchange established by the State.’ ” But the rogue rule was released anyway, as if the law meant whatever the executive chose. No matter how unmoored from statutory authority, the administration justified these actions because they “expanded coverage” and fit into the ACA’s “broader purpose.”

Executive lawmaking of this sort poses a severe threat to the separation-of-powers principles enumerated in the Constitution. The president has acted on the belief that legislative gridlock allows him to transcend his constitutional limits. A ruling that upholds this behavior would set a dangerous precedent for the nascent health-care law, which will be implemented for years to come by administrations with different views. More troubling, such a precedent could license virtually any executive action that modifies, amends or suspends any duly enacted law.

The day of reckoning for President Obama’s lawless rollout of Obamacare finally will arrive this week when the Supreme Court hears oral arguments in King v. Burwell. Americans who are interested in the rule of law should hope that when the SCOTUS hands down its decision – most likely on the very last day of the term this June – it will rule to enforce the law that was actually written, not the law the IRS wishes had been written. But those like me who are interested in good health policy are looking forward to an important side-benefit of such a principled decision. It finally may give us a crude market test for a poorly conceived and badly marketed product that so far has survived only because it has a federally enforced monopoly behind it.

Imagine if Americans had a choice between the top-down, managed-by-Washington-DC, overly prescriptive and freedom-sapping regime ushered in by Obamacare and an alternative vision managed by states, freed of Obamacare’s thicket of rules and which actually provides more protection against uncertain medical expenses? Which would you choose if given that choice?

This is the inspiring vision laid out by James Capretta and Yuval Levin in the most recent Weekly Standard. The authors astutely point out “If the Court strikes a significant blow to the law, it will be perhaps the last opportunity for Republicans to begin moving health care policy in a very different direction in the Obama years.”

The centerpiece of their off-ramp to Obamacare consists of replacing Obamacare’s subsidy structure with a much more simplified, age-adjusted tax credit to allow households without access to employer coverage to buy insurance in the private market. This protects the millions who already have had to endure the entirely unnecessary turmoil created in the non-group market over the past 2 years under Obamacare. The plan would let states opt out of Obamacare and would permit residents to use their federally-funded tax credits to purchase any health insurance product approved by the state (it would not need to be bought on an Exchange). This would restore health insurance regulation back to the states (where somehow it had managed to reside for the entire history of the U.S., until 2010) and would give residents far more freedom than they are allowed under Obamacare.

One huge advantage this alternative plan offers is that it would give people below poverty the same age-adjusted tax credit as everyone else (something Obamacare does not do). It would give states that did not expand Medicaid an avenue for sensibly restructuring their programs to complement a private insurance market (i.e., using Medicaid funds to supplement the purchase of private coverage rather than segregate such individuals into an inferior public insurance plan).

The question before the court on Wednesday is whether the federal government can keep distributing subsidies in states that failed to set up their own health insurance marketplaces. For most people receiving subsidies, the full cost of insurance plans would be unaffordable, meaning that only people with the most serious health conditions would be likely to keep buying it.

But the loss of all those low-income, relatively healthy people could destabilize the individual health insurance markets for everyone else. No one knows for sure how bad things would get, but economic forecasters estimate that, on average, prices in the affected states would rise by at least a third, and some 1.4 million unsubsidized people would leave the increasingly expensive market.

The health law was intended to make the individual health insurance market more fair and accessible than it was before the Affordable Care Act passed. The law requires health insurers to sell their products to anyone willing to buy — even people with known diseases that are likely to mean big health care bills. The law also limits how much insurers can vary premiums they charge to different people; insurers can charge higher prices to older customers than younger ones, but they can’t charge a higher price to a patient with cancer than one who is healthy.

But to balance out all the sick people that those provisions help, the law creates inducements for healthy customers to buy insurance. The biggest one is the tax credits that are available on a sliding scale to middle-income Americans. And there’s the individual mandate: Anyone who can afford insurance and doesn’t sign up will face a tax penalty. Taken together, those provisions help people with limited means afford insurance premiums, and they serve to discourage people from waiting until they’re already sick to buy insurance.

Upset that balance, and the policy structure will become broken.

“As anyone who covered it at the time … remembers, the law’s passage was an absolute mess,” Kliff reports, and the “messy language and loose ends that legislators expected to get ironed out simply became part of the law.”

Nevertheless, Kliff reports that all congressional staff involved with the drafting of the Patient Protection and Affordable Care Act swear they meant to authorize the disputed taxes and subsidies in states with federal Exchanges. She also reports that all journalists who reported on the drafting process swear that every time the topic arose, Democratic staffers always said these provisions would be authorized in states with federal Exchanges. (Well, except these members of Congress and this journalist.)

Kliff neglects to mention that there is absolutely zero contemporaneous evidence of any kind that supports those recollections. Or that contemporaneous discussions of that issue, like this one by Jonathan Cohn, show (A) that even the sharpest journalists weren’t paying attention to this issue, and (B) to the extent they did, their impressions were consistent with the subsidies being conditional.

Thus, the only contemporaneous evidence that speaks directly to the question presented to the Court is the explicit statutory text clearly limiting subsidies to Exchanges “established by the State.” That’s probably something Kliff should have mentioned. You know, so readers can decide whether to take the “if you like your health plan, you can keep it” crowd at their word.

The Patient CARE Act repeals the system of health insurance premium tax credits administered through the Health Insurance Marketplace and replaces it with a tax credit based on age, family status, and income. The credits are offered in full to any household that earns less than 200 percent of the federal poverty level (FPL) and phase out linearly between 200 and 300 percent of FPL. The Patient CARE Act repeals the qualified health plan designations and requirements under current law, and H&E assumes eligible beneficiaries will be able to apply the tax credit to any health insurance product that provides, at a minimum, meaningful catastrophic coverage. These tax credits are not available to households that are offered health insurance through an employer with more than 100 full-time employees. Households may also use tax-exempt savings in Health Savings Accounts (HSA) to pay for HSA-qualified insurance premiums.

The Patient CARE Act replaces the excise tax on high-cost employer sponsored insurance with a cap on the amount of tax-exempt income that can be spent on employer sponsored insurance premiums. The value of employer sponsored health insurance plan premiums that exceeds $12,000 for single coverage or $30,000 for family coverage will be subject to employee and employer income and payroll taxes.

The federal funding for the Medicaid expansion provided by the ACA is no longer available under the Patient CARE Act. Additionally, the current Medicaid funding mechanism will be replaced with capped, per-beneficiary allotments that are indexed to inflation. States will receive pass-through grants for certain high-risk populations and defined budgets for long-term and elderly care.

The Patient CARE Act provides states with a number of options to increase enrollment. States may use auto-enrollment to sort households that are eligible for coverage at no cost into plans designated by the state. This applies both to Medicaid and subsidized private health insurance. States will also have the authority to set up federally-funded high-risk insurance pools, establish regulatory framework for small business health plans, and enter into agreements to allow the sale of health insurance contracts across state lines. The Patient CARE Act also enacts several medical malpractice reforms aimed at reducing the cost of medical malpractice litigation and defensive medicine.