An Appeals Court Ruling Means Obamacare Will Head Back to SCOTUS

Published July 23, 2014

Consumer Power Report #429

Welcome to the Consumer Power Report.

Today a federal appeals court in Washington DC found words mean what they mean, and not what the Obama Administration interprets them to mean – a revolutionary concept in this era of unfettered government. The court found “a federal exchange is not an ‘Exchange established by the State'” under the law, and the nine separate times eligibility is described under the law in these terms do not indicate a mere typo or drafting error, but reflect the intent of Congress.

The decision is here. Philip Klein describes the nature of the issue here:

At issue in the case, Halbig v. Burwell, are the subsidies that the federal government provides for individuals purchasing insurance through Obamacare. Though the text of the law says the subsidies were to go to individuals obtaining insurance through an “exchange established by the state,” a rule released by the Internal Revenue Service subsequently instructed that subsidies would also apply to exchanges set up on behalf of states by the federal government.

But the U.S. Court of Appeals for the D.C. Circuit concluded that Obamacare “unambiguously restricts the … subsidy to insurance purchased on Exchanges ‘established by the State.'” If the decision were to survive, it would mean that hundreds of billions of dollars of taxpayer money would be saved. It would mean that businesses in states that have a federal exchange would no longer be subject to the employer mandate, because the requirement to provide insurance is tied to the fact that uninsured workers could obtain government subsidies. It would also mean that millions of Americans who signed up for insurance through Obamacare in those 36 states would no longer qualify for subsidies.

The angst from supporters of the law was immediate. This case was spearheaded by Cato Institute scholar Michael Cannon and law professor Jonathan Adler, who offered an argument dismissed by the law’s advocates but now vindicated by the court. The ramifications could be huge: It would mean the White House has been breaking the law by distributing funds it was never authorized to spend and enforcing mandates that were never supposed to go into effect. It would essentially transform the Obamacare project toward private insurance the same way the Court’s decision transformed the Medicaid expansion – from a gun-to-the-head decision for the states into an opt-in, opt-out choice.

Adler comments here on what comes after the ruling:

What comes next? The Administration will have to decide whether to seek en banc review of this decision or file a petition for certiorari. If I had to guess, I would say the former is more likely. Supreme Court review will likely wait until there are more decisions on this question. A decision remains pending in King v. Sebelius before the U.S. Court of Appeals for the Fourth Circuit and there are two pending cases in district courts.

If this decision is upheld, it will present some three-dozen states with a choice: Establish exchanges so as to authorize tax credits for state citizens while also triggering penalties on employers and individuals who do not wish to purchase qualifying health insurance. As my co-author Michael Cannon notes, the implications of this decision go beyond its effect on tax credits. How will states respond? Time will tell. As with the Medicaid expansion, it is not entirely clear how states will react now that so much of PPACA implementation is clearly in their hands.

Astoundingly enough, later in the day, the Fourth Circuit Court ruled in the opposite direction, finding the subsidies delivered via the federal exchange were allowed under the law. But that court’s defense of this view was weak to say the least, allowing that the law did seem to be in conflict with itself. And in fact, the Fourth Circuit ruling may actually speed a review by the Supreme Court for the issues put forward by this case.

Currently, the White House has said it will continue to hand out billions of dollars in subsidies despite the DC Court’s ruling – for reference, 83% of those purchasing coverage under Obamacare qualify for subsidies – as the administration is confident future rulings will uphold its position.

Despite his interest in doing so, President Barack Obama cannot spend tax dollars without federal authorization, and the court found no such authorization has been granted for the subsidies currently being offered via the federal health insurance exchange. The simple fact, as the Cato Institute’s Michael Cannon and law professor Jonathan Adler have demonstrated, is that Congress intended to use the bias toward state exchange dollars to force states to set up exchanges – never expecting states would resist this push so emphatically.

Now citizens in the 36 states that chose not to bow to the administration’s wishes must wait to see whether higher courts will find they ought to be free from Obamacare’s requirements as well. Ultimately, this will be another opportunity for the Supreme Court to weigh in on Obamacare.

— Benjamin Domenech



The Obama administration and state insurance regulators are developing stricter standards to address the concerns of consumers who say that many health plans under the Affordable Care Act have unduly limited their choices of doctors and hospitals, leaving them with unexpected medical bills.

Federal officials said the new standards would be similar to those used by the government to determine whether Medicare Advantage plans had enough doctors and hospitals in their networks. These private plans, sold by companies like UnitedHealth and Humana, provide comprehensive care to 16 million of the 54 million Medicare beneficiaries.

States are free to adopt additional standards of their own, and Washington did so in late April.

“I heard from many consumers who were upset to find their health plan no longer included their trusted doctor or hospital,” said Mike Kreidler, the insurance commissioner of Washington State. “Some people discovered this only after they had enrolled.”

David Cordani of Cigna said the insurer planned to expand beyond the five states where it offers coverage on the exchanges.

Mr. Kreidler said the new standards were needed to deal with “an emerging trend toward narrower networks of medical providers.”

If a network is viewed as inadequate, patients may need to seek care from doctors outside the network, incurring thousands of dollars in costs not covered by insurance.

New York adopted a law this year to protect consumers against such “surprise medical bills.” Before treatment, doctors must tell patients what insurance they accept. If an insurer does not have a doctor with the expertise to treat a patient’s problem, the patient can go to providers outside the network at no additional cost.

The National Association of Insurance Commissioners, representing state officials, is updating its 18-year-old model law to add new consumer protections, after finding that some insurers tried to cut costs by excluding children’s hospitals and academic medical centers. Cancer treatment centers say they, too, have been excluded from many health plan networks.

SOURCE: Robert Pear, New York Times


[T]here’s a way for congressional Republicans to go after Obamacare, cronyism, and the Democrats’ assertion that the GOP is in league with health insurers, all at once: by repealing Obamacare’s risk-corridor bailout. And after overcoming some internal resistance from don’t-rock-the-corporate-boat Beltway Republicans, it looks as if the House GOP is going to move in this direction. If they do–and if they were also to refuse to reauthorize the Export-Import Bank and were to move to reverse President Obama’s failed amnesty policies–Republicans could legitimately make the case this fall that they stand with Main Street America.

Obamacare’s risk-corridor program is a way of shifting risk from insurance companies to taxpayers–of putting the latter on the hook if the former lose money. The risk corridors’ existence incentivizes insurers to lowball their prices, since they know taxpayers will help cover their losses. It’s bad policy, and it’s unpopular. Recent polling by McLaughlin & Associates, commissioned by the 2017 Project, asked, “If private insurance companies lose money selling health insurance under Obamacare, should taxpayers help cover their losses?” Only 10 percent of respondents said yes; 81 percent said no. Yet, absent congressional action, that is exactly what’s poised to happen.

In response to recent inquiries by the House Oversight Committee, 12 insurance companies said they expect to be taking money out of the risk corridors this year, 1 expects to be paying in, and 2 expect it to be a wash. In all, health insurers expect to take nearly $1 billion more out of the program this year than they pay in–at taxpayer expense.

If that weren’t bad enough, President Obama has converted the risk corridors into a slush fund, which he has used to help cover up his lawless refusal to execute Obamacare as written. When, amidst a public outcry, Obama unilaterally declared that some Americans whose insurance policies had been banned by Obamacare could temporarily keep those policies after all, insurers weren’t happy. They had been planning on those people–most of whom are generally healthy–being forced into the exchanges. When insurers complained, Obama responded by changing the risk corridor rules to funnel more money their way. This helped buy the insurers’ silence in the face of the president’s lawlessness.

SOURCE: Jeff Anderson and William Kristol, The Weekly Standard


At the end of March, Obamacare’s first open enrollment period – the timeframe during which anyone is allowed to sign for coverage each year – came to a close, providing an opportunity to benchmark the controversial new system’s performance. That final week brought a surge in people applying for coverage, taking the total number of sign-ups to just over 8 million – better than the 7 million enrollments that the Congressional Budget Office (CBO) had predicted when the law passed, and far better than the revised estimate of 6 million the CBO predicted after the website crashed. Relying on a daily tracking poll, Gallup reported that the nation’s uninsurance rate had dropped to its lowest point since 2008.

The administration’s spin quickly went from cautiously optimistic to cocky. “I think it is fair to say we surpassed everybody’s expectations,” [White House press secretary Jay] Carney said in April.

Critics who wanted to overturn the law had been definitively proven wrong. “The point is the repeal debate is and should be over,” President Obama said in a press conference a few days later. “The Affordable Care Act is working.” White House senior adviser Dan Pfeiffer tweeted that the health care law was an “amazing comeback story.”

The administration’s belated claims of success rested heavily on two pillars: the 8 million sign-up figure and the exceedingly low expectations established by the exchanges’ disastrous launch. The White House was selling an unlikely underdog story in which the plucky little health care law, backed only by the entire executive branch of the federal government, came from behind to score an unexpected victory.

But judged by other metrics, such as rising health spending, state-by-state sign-ups, demographic balance, and public opinion, the law looks less like a success story and more like an enormous national experiment still struggling out of the gate. Yes, it could have been worse. But it also could have been a lot better. And beyond the headline successes, more than a few potential problems remain.

SOURCE: Peter Suderman, Reason


At least 6,000 people who bought health insurance through Washington’s new exchange are having trouble using that coverage because of computer glitches with the new program.

Officials at the exchange are hoping to have all the problems fixed by Aug. 1.

Insurance Commissioner Mike Kreidler told The Associated Press that’s about all the time he’s going to give the exchange to fix the problem before he starts advising people to buy their health insurance outside of it.

After Aug. 1, the insurance commissioner said he may open enrollment for people inside the exchange to buy policies directly from insurance companies. Kreidler does not control what happens through the exchange, but he does regulate insurance companies outside of it.

In addition to addressing billing problems when people call in to complain, the exchange is also auditing every account used to buy private insurance through Washington’s answer to federal health reform.

Some of the problems are related to the way Washington’s insurance marketplace was designed and others happened because of the way people filled out their applications, explained Michael Marchand, spokesman for the exchange.

SOURCE: Washington Examiner


An article in Modern Healthcare, “Should state medical boards be allowed to set scope-of-practice? Supreme Court will decide,” poses an important question that would seem like a no-brainer at first glance. Yet, the question deserves a second look. State medical boards are typically composed of members from the industry the board regulates. Thus, it’s common for these boards to take positions in the industry’s self-interest. At issue is an effort by the North Carolina Board of Dental Examiners to prohibit dental hygienists from performing teeth whitening services in mall kiosks, day spas and non-dental offices. Dentists who offer teeth whitening in their offices often supervise dental technicians and hygienists, who perform the actual service. Allowing those same dental technicians and hygienists to perform the work without the supervision of a dentist undercuts dentists’ prices and reduces their profits. …

As you would expect, the medical community disagrees with the FTC. Professional associations for doctors and dentists argue that public health considerations (for example, letting doctors and dentists regulate who is allowed to compete against them) should take priority over antitrust law and the mere desire to promote competition. The American Dental Association, the American Medical Association and the Federation of State Medical Boards submitted a friend-of-the-court brief, arguing:

“This result would interfere with a long tradition of regulation of the medical professions by boards composed of experienced and practicing doctors, which stretches back over 150 years and is based on virtually uniform state legislative judgments that such practitioners are best qualified to promote the public health.”

Medical licensure and the state medical boards that govern the practice of medicine within each state has often been described as a self-regulating cartel. Nobel laureate Milton Friedman and many other economists have argued state licensure restricts the supply of physicians and stifles competition. Medical licensure is purportedly maintained for the protection of the public. But, what should be done when, while in the process of protecting the public from providers of dubious quality, the industry also protects itself from competition? That is the question the Supreme Court will decide next fall.

SOURCE: Devon Herrick, NCPA


The federal government has a word for physicians who don’t have financial relationships with pharmaceutical and medical device manufacturers: “Error.”

Last week, the government began allowing doctors to log into a secure website to check the payments attributed to them by drug and device makers. This information will be made public later this year under the Physician Payment Sunshine Act, a part of the 2010 Affordable Care Act. In advance, if doctors believe the material about them is wrong, they can contest it.

But early reports suggest the new site has some glitches. Doctors say it is taking them as long as an hour, sometimes longer, to verify their identities and log in. (Because the information is not yet public, doctors have to go through several steps to prove they are who they say they are.) Once they get that far, doctors who were expecting the site to clearly reflect that they don’t have relationships with pharmaceutical companies have met with a surprise.

“You have the following errors on the page,” the Open Payments website tells them. “There are no results that match the specified search criteria.”

The Open Payments website, when it is open to the public, will show payments made from August to December 2013. Going forward, it will cover complete calendar years.

Dr. Bradley Flansbaum, a hospitalist at Lenox Hill Hospital in New York City, received the error message, which he called “ambiguous.”

While he doesn’t work with companies, “I am still uncertain, despite arriving at the exit screen, whether error means no pharma reports or HHS [has] a bug to repair,” he said in an e-mail.

SOURCE: Charles Ornstein, ProPublica


Missouri is the only state in America without a prescription drug database, which The New York Times describes as “the primary tool the other 49 states use to identify people who acquire excess prescriptions for addictive painkillers and tranquilizers,” as well as the doctors who overprescribe them. In 49 states, the government is keeping track of what prescription medications you take.

That’s a little disconcerting, no? While these databases are touted as ways to combat prescription painkiller abuse and trafficking, most states require doctors and/or pharmacists to report prescriptions for any number of medications, including [ADHD] and anti-anxiety drugs such as Ritalin, Adderall, and Xanax. This database then can, and sometimes must, be consulted by future physicians prescribing drugs.

Missouri state Sen. Rob Schaaf (R-District 34) and a small group of other legislators have been fighting against pressure–from medical groups, “members of Congress from neighboring states,” the White House, and drugmakers–to institute such a database. Schaaf, a family physician, says allowing a government database of prescription drug records is a privacy violation.

SOURCE: Elizabeth Nolan Brown, Reason