The Affordable Care Act (“ACA”) seeks to make health insurance available to individuals and small groups by, among other things, providing guaranteed issue and renewal and eliminating pre-existing condition exclusions; the ACA seeks to make health insurance affordable by, among other things, providing premium subsidies and cost-sharing reductions to eligible individuals and families.2 The premium subsidies are available to eligible individuals and families enrolled in qualified health plans “through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act.” Those premium subsidies are available for each month during which an eligible individual or family is covered by a qualified health plan in which the individual or family enrolled “through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act.”
The “Exchange” with a capital “E,” which is referenced in the phrase “established by the State” under ACA § 1311, is a statutorily defined term that means the “American Health Benefit Exchange” that ACA § 1311(b) directs each State “shall . . . establish.” Specifically, ACA § 1311(b) says:
“Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an ‘Exchange’) . . . .”
The referenced “this title” means ACA Title I, which implements ACA’s health insurance market reforms and adds the premium subsidies by amendment of the Internal Revenue Code.5 So as a matter of the plain statutory language, each appearance of "Exchange” with a capital “E” in ACA Title I stands for the "American Health Benefit Exchange” that “[e]ach State shall . . . establish” under ACA § 1311.
Congress tempered the “shall” directive to States by granting “flexibility” in ACA § 1321 that allows each State to elect whether to establish an “Exchange.” Congress told the Department of Health and Human Services (“DHHS”) that, if a State elects not to establish an “Exchange” or fails to show sufficient progress by January 1, 2013 toward having an “Exchange operational by January 1, 2014,” then DHHS must “establish and operate such Exchange within the State.”
Grammatically, “such Exchange” can only mean that, in each State that did not establish the “Exchange” mandated by ACA § 1311, DHHS is establishing and operating exactly that “Exchange”—that is, the “Exchange” that “[e]ach State shall . . . establish” under ACA § 1311. In other words, grammatically, any "Exchange” established and operated by DHHS is the “Exchange established by the State under section 1311” of the ACA. That is the construction of the ACA adopted by the Internal Revenue Service and DHHS in implementing premium subsidies.
The Legal Dispute
Not so fast, say the plaintiffs in King v. Burwell. Bringing the theories and arguments of Cato Institute Economist Michael Cannon and Case Western Reserve Law School Professor Jonathan Adler to court,these plaintiffs argue that the “plain language” of the ACA limits premium subsidies only to individuals and families residing in States that have established their own “Exchange.” Sixteen States and the District of Columbia have done that, but 34 States have not, and two—Oregon and Nevada—have turned to the federally-operated Exchange for 2015 to replace their technologically failed State efforts.
What the plaintiffs showcase is that, plainly read, Congress adding “established by the State” to "Exchange” means that premium subsidies are only available through an “Exchange” that is different than the “Exchange” that appears everywhere else in ACA Title I. This notwithstanding that, by Congressional definition, the “Exchange” that DHHS must establish and operate is the same “Exchange” defined as the “American Health Benefit Exchange” that “[e]ach State shall . . . establish” under ACA Section 1311.
We leave to the Supreme Court to parse whether either of the “plain language” arguments should prevail, or whether Congress left the matter sufficiently muddled that the Chevron doctrine controls, requiring deference to the IRS’s interpretation as reflected in the implementing rule it issued.10 We look, instead, at the ramifications of the Supreme Court nullifying premium subsidies in the 34 States in which DHHS has established and operates the “Exchange.”
Ramifications of the Supreme Court Nullifying Premium Subsidies on the Federal Exchange
What’s all this fuss about? For ACA’s political opponents, the fuss is the promise of major damage to the ACA they want destroyed. For more than 8 million people eligible for affordable health insurance through premium subsidies in the 34 States with the federally-operated Exchange, the fuss is the threat to their continued ability to afford, hence, keep that coverage.
For health care providers in those 34 States, the fuss is loss of patients with health insurance coverage to pay for care, meaning lost revenue and increased uncompensated emergency room and other care. For the tax-paying public of those 34 States, the fuss is the use of their federal tax dollars to pay premium subsidies for residents of California, New York and other States that have State-operated Exchanges, without the taxpayers of those 34 States getting any federal tax dollars (including their own) for premium
subsidies in return.
But the table stakes are higher than all those fusses; loss of premium subsidies in the States with the federally-operated Exchange could start the demise of their individual health insurance markets. Here’s why.
All King can do to the ACA is kill the premium subsidies in States that don’t have a State-operated Exchange. All other ACA health insurance market reforms will remain in full force and effect in those States. That includes guaranteed issue and renewal, no pre-existing condition exclusions, and a single risk pool for individual market coverage sold inside and outside the Exchange.12
So during annual open enrollment under the ACA anyone and everyone can get health insurance for themselves and their families, no matter how sick, just by paying the premium of the individual market qualified health plan selected. And most people will face a tax penalty under the ACA’s “individual mandate” if they fail to buy an individual market qualified health plan they can afford and have no employer-sponsored or other “minimum essential coverage.”13
Therein lies the rub behind the attacks on premium subsidies in King. Individuals and families are excused from the "individual mandate" if it will cost more than 8 percent of their household income to pay “the annual premium for the lowest cost bronze plan available in the individual market through the Exchange in the State in the rating area in which the individual resides (without regard to whether the individual purchased a qualified health plan through the Exchange), reduced by the amount of credit allowable under section 36B,” that is, reduced by the amount of available premium subsidy.
There will be no premium subsidy in 34 States if the Supreme Court kills premium subsidies in deciding King. That means many people in those States will find individual market coverage “unaffordable” because they’ll have no premium subsidy to offset coverage cost, excusing those people from the “individual mandate.” With no tax penalty to spur purchase of coverage because coverage is not “affordable,” the individual market risk pools of those States will deteriorate as the healthy excused from the “individual mandate” by income delay purchasing coverage while the sick flock to buy what coverage they can afford without premium subsidies. Enter classic “adverse selection” infecting the individual markets of these 34 States.
That sicker, hence, risker and costlier, risk pool will drive up individual market premiums—from 35% to over 43% according to current analyses. That will drive more healthy people out of the individual market risk pool, which will drive more premium increases, which will make individual market coverage unaffordable for more people in those 34 States. In other words, the result of killing premium subsidies is ever more unaffordable health insurance, not just for those currently eligible for premium subsidies, but also for people currently able to afford coverage without premium subsidies who won’t be able to afford
the ever higher premiums caused by the deteriorating individual market risk pool. Thus begins the “death spiral” for the individual markets in those 34 States.
Enter the wisdom of Oscar Wilde, who quipped, “The only thing worse than not getting what you want is getting it.” A Kaiser Health News poll found “most people think Congress or states should act to restore health insurance subsidies if the Supreme Court decides . . . they are not permitted in states where the federal government is running” the Exchange.16 If the Supreme Court kills premium subsidies, the Kaiser Health News poll found that “64 percent said Congress should restore them, and 59 percent said states should create their own exchanges.”
What’s a Republican in Congress and the States to do—swallow disdain for the ACA and bend to the public will for premium subsidies to make health coverage affordable, or resist and hope that loss of subsidies and individual market chaos in the States with the federally-operated Exchange will support public scorn for the ACA, rather than political backlash for championing a cause that takes affordable health insurance away from those who now have it? This dilemma is acknowledged by Leavitt Partners, a consulting firm named for and headed by the former Republican governor of Utah and DHHS Secretary during the Second Bush Administration, which observes:
“Republicans in the Senate and House of Representatives find themselves in a precarious situation in the scenario of a victory for King. On one hand, the ACA is stripped of a powerful provision to extend health care to millions of Americans who enrolled in the federal marketplaces, not to mention the attendant effect on Medicaid expansion in some states. On the other, Republicans have tied their own hands by their outspoken antagonism against the law and could be seen as taking health care away from millions by not providing an amendment that continues the insurance subsidies increasingly viewed as an entitlement.”
The dilemma is of enough apparent concern that Congressional Republicans are advancing legislative plans to remedy a Supreme Court blow against ObamaCare subsidies on the federal-operated Exchange. States also have an apparent “Plan B”—establish and operate a “federally-supported” state-operated Exchange to replace the federally-operated Exchange. That “Plan B” would require either State legislative or gubernatorial action to establish a legal entity to be the State’s Exchange, which would then contract with DHHS to provide the “back-office” technology of “Healthcare.gov."
That “Plan B” is how the State of Idaho established its State-operated Exchange before this year substituting its own back-office infrastructure to replace “Healthcare.gov,” and how New Mexico, Nevada and Oregon are operating during 2015. One can wonder, should Congress or States bend to public pressure to restore premium subsidies if the Supreme Court kills them, whether King ends up as much ado about nothing.
For end notes and more information, follow the source link below.
