“SCOTUSCare” Redux? How Brett Kavanaugh Helped Uphold Obamacare

In a 2015 dissent to an Obamacare case, Supreme Court Justice Antonin Scalia famously opined that the court had concluded “that this limitation would prevent the rest of [Obamacare] from working as well as hoped. So it rewrites the law.… We should start calling this law SCOTUScare.”

Last week’s retirement announcement from Justice Anthony Kennedy, coupled with news placing Brett Kavanaugh, a judge on the U.S. Court of Appeals for the District of Columbia, high on President Trump’s list to replace Kennedy, has drawn attention back to the legal wrangling over the law. Some observers have claimed that Kavanaugh, in a 2011 opinion written when the D.C. Circuit considered Obamacare’s constitutionality, supported the law’s individual mandate.

Extended Discussion of the Anti-Injunction Act

Most of Kavanaugh’s opinion discusses interpretations of statute that hardly qualify as an enlightening discourse of constitutional principles. Whereas his two circuit court colleagues upheld the mandate as a valid exercise of Congress’ power under the Constitution’s Commerce Clause, Kavanaugh “dissent[ed] as to jurisdiction and [did] not decide the merits.”

Kavanaugh’s dissent arose from his belief that the 1867 Anti-Injunction Act precluded the court from deciding the merits of the individual mandate. The Anti-Injunction Act prevents individuals from challenging the validity of taxes in court until after they have paid them, which if applied to Obamacare’s mandate (which took effect in 2014) meant that a court challenge would not ripen until individuals had paid the mandate penalty on their taxes—i.e., in spring 2015, or nearly four years after the D.C. Circuit ruling.

Kavanaugh spends the better part of 50 pages—longer than the majority opinion justifying the mandate as constitutional—analyzing the Internal Revenue Code, and the Anti-Injunction Act, to support his belief that the mandate qualified as a tax under the act, forestalling any legal or constitutional challenge until after individuals had paid it. He cautions “the reader that some of the following is not for the faint of heart”—a true enough warning, as much of the opinion devolves into tedium that only a tax lawyer could love.

While Roberts disagreed with Kavanaugh’s reasoning about applying the Anti-Injunction Act to the Obamacare mandate, such differences over the interpretation of a 150-year-old statute hardly rise to the level of disqualifying for a potential Supreme Court nominee.

A Bit of Judicial Restraint…

Indeed, three-quarters of Kavanaugh’s ruling provides a worthy defense of judicial restraint—judges avoiding decisions on weighty questions wherever possible. He argues that courts should defer to Congress, which enacted the Anti-Injunction Act in the first place:

The jurisdictional status of the Anti-Injunction Act reflects the Constitution’s separation of powers in operation.  Under the Constitution, Congress possesses the power to tax and spend, as well as the power of the purse over appropriations of money. Congress zealously guards those prerogatives. Here, Congress has not afforded discretion to the Executive Branch to waive or forfeit the Anti-Injunction Act’s bar with respect to the assessment and collection of taxes. Rather, by making the Anti-Injunction Act jurisdictional, Congress has commanded courts to abide by the Act even when the Executive Branch might not assert it.

He also disregards efforts by the Obama administration, in attempts to provide policy certainty regarding Obamacare, encouraging the courts to decide the merits of the individual mandate before it took effect, rather than invoking the Anti-Injunction Act to bar the suits until 2015:

We must adhere to the statutory constraints on our jurisdiction no matter how much the parties might want us to jump the jurisdictional rails and decide this case now….By waiting, we would respect the bedrock principle of judicial restraint that courts avoid prematurely or unnecessarily deciding constitutional questions.

Followed by Judicial Activism

The last section of Kavanaugh’s opinion explains why he believes the courts should not decide the constitutionality of the individual mandate: “this case could disappear by 2015 because, by then, Congress may fix the alleged constitutional shortcoming and ensure that the Affordable Care Act’s individual mandate provision fits comfortably within Congress’ Taxing Clause power.”

In Kavanaugh’s view, the mandate could fit “comfortably” within Congress’ constitutional powers. Even as he “do[es] not take a position her on whether the statute as currently written is justifiable,” Kavanaugh concludes that “the only potential Taxing Clause shortcoming in the current individual mandate provision appears to be relatively slight” (emphasis in the original).

Several pages thereafter, Kavanaugh continues to answer a question nobody asked him, giving the legislature instructions on how to remedy the in-his-view minor constitutional infirmity:

This discussion about the potential problem with the Government’s Taxing Clause argument also shows how easily Congress could eliminate any such potential problem.  For example, Congress might keep the current statutory language and payment amounts and simply add a provision as basic as: “The taxpayer has a lawful choice either to maintain health insurance or make the payment to the IRS required by Section 5000A(a)-(c).” Or Congress might retain the exactions and payment amounts as they are but eliminate the legal mandate language in Section 5000A, instead providing something to the effect of: “An applicable individual without minimum essential coverage must make a payment to the IRS on his or her tax return in the amounts listed in Section 5000A(c).” Or Congress could adopt the approach from the House-passed bill, which expressly created a tax incentive and plainly satisfied the Taxing Clause.

Any of those options—and others as well—would ensure that this provision operates as a traditional regulatory tax and readily satisfies the Taxing Clause.

Kavanaugh’s Roadmap to Save Obamacare

Some will note the irony of Kavanaugh’s opinion stating that “no court to reach the merits has accepted the Government’s Taxing Clause argument.” Josh Blackman notes in his book “Unprecedented: The Constitutional Challenge to Obamacare” that Solicitor General Donald Verilli “advanced this very argument”—that severing the mandate to buy health insurance from the tax for not buying health insurance would make the latter constitutional—“at the Supreme Court.”

The gambit worked. Roberts ultimately relied upon that argument from Verilli by way of Kavanaugh to uphold the mandate as a constitutional exercise of the taxing power. That Kavanaugh, like Roberts, used the last few pages of his opinion to decry the “unprecedented” nature of a mandate upheld via the Commerce Clause power does not mitigate his favorable analysis of a mandate upheld via the Taxing Clause power.

Other analysts with more experience in constitutional and legal jurisprudence (and perhaps less experience in health policy) can opine on other parts of Kavanaugh’s record. But his opinion on Obamacare, while starting out with an admirable nod toward judicial restraint, unfortunately veered in an activist direction that gives this conservative serious pause.

This post was originally published at The Federalist.

The Absurdity of the Justice Department’s Obamacare Lawsuit Intervention

Last summer, I wrote about how President Trump had created the worst of all possible outcomes regarding one Obamacare program. In threatening to cancel cost-sharing reduction payments to insurers, but not actually doing so, the administration forced insurers into raising premiums, while not complying with the rule of law by cutting off the payments outright.

Eventually, the administration finally did cut off the payments in October, but for several months, the uncertainty represented a self-inflicted wound. So too a brief filed by the Department of Justice (DOJ) late last week regarding an Obamacare lawsuit several states brought in February, which asked the court to strike down both Obamacare’s individual mandate and the most important of its federally imposed insurance regulations.

It takes a very unique set of circumstances to arrive at this level of opposition. Herewith the policy, legal, and political implications of DOJ’s actions.

Let’s Talk Policy First

Strictly as a policy matter, I agree with the general tenor of the Justice Department’s proposals. Last April, I analyzed Obamacare’s four major federally imposed insurance regulations:

  1. Guaranteed issue—accepting all applicants, regardless of health status;
  2. Community rating—charging all applicants the same premiums, regardless of health status;
  3. Essential health benefits—requiring plans to cover certain types of services; and
  4. Actuarial value—requiring plans to cover a certain percentage of each service.

I concluded that these four regulations represented a binary choice for policymakers: Either Congress should repeal them all, and allow insurers to price individuals’ health risk accordingly, or leave them all in place. Picking and choosing would likely result in unintended consequences.

The Justice Department’s brief asks the federal court to strike down the first two federal regulations, but not the last two. This outcome could have some unintended consequences, as a New York Times analysis notes.

But repealing the guaranteed issue and community rating regulations would remove the prime driver of premium increases under Obamacare. Those two regulations led rates for individual coverage to more than double from 2013 to 2017, necessitating the requirement for individuals to purchase, and employers to offer, health coverage, the subsidies to make coverage more “affordable,” and the tax increases and Medicare reductions used to fund them.

I noted last April that Republicans have a choice: They can either keep the status quo on pre-existing conditions or they can fulfill their promise to repeal Obamacare. They cannot do both. The DOJ brief acknowledges this dilemma, and that the regulations represent the heart of the Obamacare scheme.

Legal Question 1: Constitutionality

Roberts held that, while the federal government did not have the power to compel individuals to purchase health coverage under the Constitution’s Commerce Clause, Congress did have the power to impose a tax penalty on the non-purchase of coverage, and upheld the individual mandate on that basis.

But late last year, Congress set the mandate penalty to zero, with the provision taking effect next January. Both the plaintiff states and DOJ argue that, because the mandate will not generate revenue for the federal government beyond 2019, it can no longer function as a tax, and should be struck down as unconstitutional.

Ironically, if Congress took an unconstitutional act in setting the mandate penalty to zero, few seem to have spent little time arguing as much prior to the tax bill’s enactment last December. I opposed Congress’ action at the time, because I thought Congress needed to repeal more of Obamacare—i.e., the regulations discussed above. But few raised any concerns that setting the mandate penalty to zero represented an unconstitutional act:

  • While one school of thought suggests presidents should not sign unconstitutional legislation, President Trump signed the tax bill into law.
  • Likewise, President Trump did not issue a signing statement about the tax bill, seemingly indicating that the Trump administration had no concerns about the bill, constitutional or otherwise.
  • While in 2009 the Senate took a separate vote on the constitutionality of Obamacare, no one raised such a point of order during the Senate’s debate on the tax bill.
  • I used to work for one of the plaintiffs in the states’ lawsuit, the Texas Public Policy Foundation. TPPF put out no statement challenging the constitutionality of Congress’ move in the tax bill.

Legal Question 2: Severability

As others have noted, a court decision striking down the individual mandate as unconstitutional would by itself have few practical ramifications, given that Congress already set the mandate penalty to zero, beginning in January. The major fight lies in severability—either striking down the entire law, as the states request, or striking down the two major federal insurance regulations, as the Justice Department suggested last week.

The DOJ brief and the states’ original complaint both cite Section 1501(a) of Obamacare in making their claims to strike down more than just the mandate. DOJ cited that section—which called the mandate “essential to creating effective health insurance markets”—13 times in a 21-page brief, while the states cited that section 18 times in a 33-page complaint.

But that claim fails, for several reasons. First, the list of findings in Section 1501(a)(2) of the law discusses the mandate’s “effects on the national economy and interstate commerce.” In other words, this section of findings attempted to defend the individual mandate as a constitutional exercise of Congress’ power under the Commerce Clause—an argument Roberts struck down in the NFIB v. Sebelius ruling six years ago.

Second, the plaintiffs and the Justice Department briefs focus more on what a Congress eight years ago said—i.e., their non-binding findings to defend the individual mandate under the Commerce Clause—than what the current Congress did when it set the mandate penalty to zero, but left the rest of Obamacare intact. The Justice Department tried to retain a fig leaf of consistency by taking the same position regarding severability that the Obama administration did before the Supreme Court in 2012: that if the mandate falls, the guaranteed issue and community rating provisions (and only those provisions) should as well.

However, the Justice Department’s brief all but ignores Congress’s intervention last year. In a letter to Speaker of the House Paul Ryan (R-WI) regarding the lawsuit, Attorney General Jeff Sessions noted that “We presume that Congress legislates with knowledge of the [Supreme] Court’s findings.” A corollary to that maxim should find that the administration takes decisions with knowledge of Congress’ actions.

But rather than observing how this Congress zeroed out the mandate penalty while leaving the rest of Obamacare intact, DOJ claimed that the 2010 findings should control, because Congress did not repeal them. (Due to procedural concerns surrounding budget reconciliation, Senate Republicans arguably could not have repealed them in last year’s tax bill even if they wanted to.)

Third, as the brief by a series of Democratic state attorneys general—who received permission to intervene in the case—makes plain, Republican members of Congress said repeatedly during the tax bill debate last year that they were not changing any other part of the law. For instance, during the Senate Finance Committee markup of the tax bill, the committee’s chairman, Orrin Hatch (R-UT), said the following:

Let us be clear, repealing the [mandate] tax does not take anyone’s health insurance away. No one would lose access to coverage or subsidies that help them pay for coverage unless they chose not to enroll in health coverage once the penalty for doing so is no longer in effect. No one would be kicked off of Medicare. No one would lose insurance they are currently getting from insurance carriers. Nothing—nothing—in the modified mark impacts Obamacare policies like coverage for preexisting conditions or restrictions against lifetime limits on coverage….

The bill does nothing to alter Title 1 of Obamacare, which includes all of the insurance mandates and requirements related to preexisting conditions and essential health benefits.

As noted above, I want Congress to repeal more of Obamacare—all of it, in fact. But what I want to happen and what Congress did are two different things. When Congress explicitly set the mandate penalty to zero but left the rest of the law intact, I should not (and will not) go running to an activist judge trying to get him or her to ignore the will of Congress and strike all of it down regardless. That’s what liberals do.

Too Cute by Half Problem 1: Legal Outcomes

The brief the Democratic attorneys general filed suggested another possible outcome—one that would not please the plaintiffs in the lawsuit. While the attorneys general attempted to defend the mandate’s constitutionality despite the impending loss of the tax penalty, they offered another solution should the court find the revised mandate unconstitutional:

Under long-standing principles of statutory construction, when a legislature purports to amend an existing statute in a way that would render the statute (or part of the statute) unconstitutional, the amendment is void, and the statute continues to operate as it did before the invalid amendment was enacted.

It remains to be seen whether the courts will find this argument credible. But if they do, a lawsuit seeking to strike down all of Obamacare could actually restore part of it, by getting the court to reinstate the tax penalties associated with the mandate.

This scenario could get worse. In 2015, the Senate parliamentarian offered guidance that Congress could set the mandate penalty to zero, but not repeal it outright, as part of a budget reconciliation bill. Republicans used this precedent to zero-out the mandate in last year’s tax bill. But a court ruling stating that Congress cannot constitutionally set the mandate penalty to zero, and must instead repeal it outright, means Senate Republicans would have to muster 60 votes to do so—an outcome meaning the mandate might never get repealed.

In June 2015, the Supreme Court issued a ruling in the case of King v. Burwell. In its opinion, the court ruled that individuals in states that did not establish their own exchanges (and used the federally run healthcare.gov instead) could qualify for health insurance subsidies. By codifying an ambiguity in the Obamacare statute in favor of the subsidies, the court’s ruling prevented the Trump administration from later taking executive action to block those subsidies.

In King v. Burwell, litigating over uncertainty in Obamacare ended up precluding a future administration from taking action to dismantle it. The same thing could happen with this newest lawsuit.

Too Cute by Half Problem 2: Legislative Action

Sooner or later, someone will recognize an easy solution exists that would solve both the problem of constitutionality and severability: Congress passing legislation to repeal the mandate outright, after the tax bill set the penalty to zero. But this scenario could lead to all sorts of inconsistent, yet politically convenient, outcomes:

  • Democrats attacking Republicans over last week’s DOJ brief might oppose repealing a (now-defanged) individual mandate, because it would remove what they view as a powerful political issue heading into November’s midterm elections;
  • Republicans afraid of Democrats’ political attacks might say they repealed a part of Obamacare (i.e., the individual mandate) outright to “protect” the rest of Obamacare (i.e., the federal regulations and other assorted components of the law) from being struck down by an activist judge; and
  • Some on the Right might oppose Congress taking action to repeal “just” the individual mandate, because they want the courts to strike down the entire law—even though such a job rightly lies within Congress’ purview.

As others have noted, these contortionistic, “Through the Looking Glass” scenarios speak volumes about the tortured basis for this lawsuit. The Trump administration should spend less time writing briefs that support legislating from the bench by unelected judges, and more time working with Congress to do its job and repeal the law itself.

This post was originally published at The Federalist.

Judge’s Ruling Prevents Sabotage…Of the Constitution

Late this afternoon, a federal judge in San Francisco issued a ruling in the recent court case surrounding cost-sharing reduction (CSR) payments. Judge Vince Chhabria—notably, an appointee of President Obama—denied a request by Democratic Attorneys General for a preliminary injunction demanding that the Trump Administration keep making the CSR payments to insurers. By denying the request for an injunction, Judge Chhabria’s ruling illustrates how the Obama Administration sabotaged the Constitution by spending money without a congressional appropriation.

Notably, Judge Chhabria’s ruling came on the merits of the case for an injunction—he rejected arguments by the Justice Department that the states lacked standing to sue, or that they should have filed their case in the District of Columbia, where the House v. Hargan lawsuit initiated in 2014 remains pending. The judge observed repeatedly that “it appears initially that the Trump Administration has the stronger argument.” Specifically, he stated that the case differed from King v. Burwell—where the Supreme Court ruled that language that appeared clear in isolation (“Exchange established by the State”) was actually ambiguous in the context of the broader statute. Judge Chhabria concluded that, at this stage of the case, it appears the Administration has the stronger argument that the cost-sharing reduction payments and premium subsidies are two separate and distinct programs—meaning that the Obama Administration violated the Constitution by using an appropriation for the latter to spend money on the former.

On whether or not the states would suffer irreparable harm without a preliminary injunction, Judge Chhabria noted (as this author has done previously) that cutting off CSR payments would actually increase overall spending on health subsidies, and reduce the number of uninsured—outcomes that liberals would normally support. He pointed out this scenario to the plaintiffs—and their response, as cited in the ruling, speaks for itself:

When counsel for the State of California was confronted at oral argument with the fact that the relief sought by the states [i.e., a preliminary injunction] could cause this harm [i.e., a reduction in subsidy spending], he responded by suggesting that perhaps the Court could order the Administration to resume the CSR payments even while the states continue to allow the insurance companies to charge higher premiums on the exchanges, with the idea that the numbers would reconciled later, through some unexplained process. In other words, allow the insurance companies to collect double payments in 2018. This argument does not even merit a response.

But it does raise the question: why, in light of this discussion, have all these Attorneys General rushed to court seeking an emergency ruling against President Trump?

The answer might best be explained by the last two words: “President Trump.” To demonstrate themselves as part of “The Resistance,” the Democratic Attorneys General were willing to bring a case that might actually harm their constituents more than it helps them.

In his conclusion, Judge Chhabria had little patience for the liberal strategy of “talking down Obamacare”—making “doom-and-gloom” predictions prior to open enrollment, just to score political points by accusing President Trump of “sabotage:”

If the states are so concerned that people will be scared away from the exchanges by the thought of higher premiums, perhaps they should stop yelling about higher premiums. With open enrollment just days away, perhaps the states should focus instead on communicating the message that they have devised a response to the CSR payment termination that will prevent harm to the large majority of people while in fact allowing millions of lower-income people to get a better deal on health insurance in 2018. [Emphasis mine.]

Which raises an important question: Do Democrats actually WANT Obamacare to succeed—or do they secretly want it to fail, because they believe President Trump will get the blame if it does?

Regardless, today’s ruling upholds the argument that Obamacare does NOT include an appropriation for cost-sharing reduction payments, and that the Obama Administration sabotaged the Constitution and the rule of law by spending funds never appropriated by Congress. Perhaps now that one of President Obama’s own judicial nominees has ratified that conclusion, people can focus on that sabotage, instead of the supposed “sabotage” of Obamacare.

Fulfilling the Promise of Obamacare Repeal

A PDF of this document is available here.

 

For years, the American people have suffered from the ill effects of Obamacare’s federal intrusions into the health care system. Millions of Americans received cancellation notices telling them that the plans they had, and liked, would disappear—a direct violation of President Obama’s repeated promises.[1] Insurance premiums have skyrocketed, rising nearly 50 percent in 2014, followed by another increase of over 20 percent this year.[2] Insurance options have disappeared, with Americans in approximately one-third of all U.S. counties having the “choice” of only one insurer in 2017.[3]

But as the 115th Congress begins, the new Republican majority, and President-elect Donald Trump, have pledged to bring the American people desperately needed relief, by fulfilling their long-stated promise to repeal Obamacare. Congressional leaders have stated their intention to bring forward legislation that repeals key portions of Obamacare using budget reconciliation procedures. Such legislation would likely resemble the reconciliation bill that the prior 114th Congress passed, but President Obama vetoed on January 8, 2016.

That legislation, H.R. 3762 of the last Congress, repealed funding for Obamacare’s new entitlements—Medicaid expansion to the able-bodied, and coverage subsidies for individuals of low and moderate incomes purchasing coverage on insurance Exchanges—effective January 1, 2018, approximately two years after enactment. It repealed all of the law’s tax increases—including the tax penalties associated with the individual and employer mandates—beginning January 1, 2016, effectively coinciding with the date of enactment. The bill also included other important provisions, restricting federal Medicaid payments to certain providers.[4]

Critics have argued that, having voted for this legislation once under President Obama, Members of Congress should not pass this bill again, sending it to President Trump’s desk for immediate signature.[5] These critics argue that Congress cannot repeal Obamacare’s costly insurance regulations under the special budget reconciliation procedures, which require all provisions in reconciliation legislation to have a significant budgetary impact. The critics fear that passing such legislation would effectively nullify Obamacare’s individual and employer mandates immediately, and its subsidies eventually, while keeping in place its costly insurance regulations that have significantly raised premiums. They believe that these steps would exacerbate adverse selection—a scenario whereby only sick individuals purchase health insurance coverage—de-stabilize insurance markets, and lead more insurers to drop out of insurance Exchanges altogether.

Those concerns, while legitimate, are misplaced on several fronts. First, Congress has not yet litigated whether or not some or all of the major Obamacare insurance regulations are budgetary in nature, and can be considered as part of reconciliation legislation. Second, Congress can and should take steps to modify last year’s reconciliation bill in ways that will stabilize insurance markets in the near-term, and create a transition to alternative legislation Congress constructs. Third, the incoming Trump Administration has significant regulatory powers within its purview, which can minimize the adverse selection effects critics fear from repeal legislation, and modify the federal mandates that have driven up premiums in recent years.

While not perfect, and less ideal than starting from scratch, last year’s reconciliation legislation represents a solid base from which to construct a legislative and regulatory framework for repealing Obamacare. It also represents the fastest approach for Congress to deliver on the promise it has made to its constituents for over six years: Unwinding an unaffordable and unworkable health care law.

 

What Congress Should Do

Last year’s reconciliation measure provides a good starting point for Congress when drafting repeal legislation to consider this year. However, Congress should attempt both to expand and revise the measure. These efforts would both mitigate against any adverse selection concerns, and stabilize insurance markets while Congress considers alternative legislation.

Expand Reconciliation to Insurance Regulations:               Critics have claimed that Obamacare’s major insurance regulations “were not altered in H.R. 3762; they could not be altered in a reconciliation bill taken up in 2017, either,” due to procedural restrictions inherent in the budget reconciliation process.[6] Such a definitive assertion is at best premature. Observers have noted that “Congress chose not to litigate” the issue of whether and what restrictions are budgetary in nature, and therefore eligible for repeal in reconciliation legislation, when considering H.R. 3762 in the fall of 2015.[7]

However, Congress can, and should, choose to litigate those issues with the Senate parliamentarian now. Rulings by the Senate parliamentarian will guide lawmakers as they determine which provisions of repeal legislation meet budget reconciliation guidelines, and can therefore be approved using a simple, 51-vote majority without being subject to the 60-vote threshold used for other legislation subject to a filibuster.

The Congressional Budget Office, think-tanks, and other actuarial organizations have produced estimates showing the significant costs of many of Obamacare’s insurance mandates—including requirements related to pre-existing conditions; essential health benefits; community rating requirements; actuarial value; medical loss ratios; preventive care coverage requirements; and other major mandates. The Obama Administration itself has produced cost estimates for several of the law’s mandates—and argued twice before the Supreme Court that its regulatory mandates are critical to the law’s structure.[8]

Congress can and should expand the scope of last year’s reconciliation bill to include the major insurance regulations. Doing so would be consistent with both the existing scoring estimates and past practice under budget reconciliation. Moreover, expanding the scope of repeal to include the largest insurance mandates would mitigate against adverse selection effects that might result if Congress repealed the individual mandate while leaving the major insurance regulations in place.

Freeze Enrollment in Entitlements:            Consistent with the transition period provided for in the 2015 reconciliation legislation, any repeal measure should also include steps to freeze enrollment in the law’s new entitlements. Such actions would be particularly pertinent to Obamacare’s massive expansion of Medicaid—the source of most of the law’s spending, and the vast majority of its coverage expansions.[9]

Research indicates that past states that froze enrollment in Medicaid allowed the vast majority of enrollees to transition off of the program, and into work, within a short period of time.[10] Moreover, another study published by the National Bureau of Economic Research concluded that Tennessee’s decision to roll back its unsustainable Medicaid expansion in 2005 led to “large increases in [the] labor supply” and increases in employment, as individuals dis-enrolled from Medicaid looked for—and obtained—employment, and employer-sponsored health insurance.[11] Freezing enrollment would hold existing beneficiaries harmless, while beginning to transition away from Obamacare’s unsustainable levels of spending—and encouraging economic activity and job growth.

Beginning this year, states that expanded Medicaid under Obamacare will also face added fiscal burdens, as they must finance a portion (in 2017, 5 percent) of the cost of coverage for the first time. Even Democratic state legislators in “blue states” like Oregon and New Mexico have raised concerns about what the cost of this massive expansion of Medicaid to the able-bodied will do to other important state programs targeting “the most vulnerable of our citizens.”[12] For all these reasons, Congress should insert language into the reconciliation freezing enrollment upon enactment—or perhaps shortly after enactment, to allow expansion states time to submit amendments to their existing state plans reflecting this legislative change.

Congress should also explore freezing enrollment in the law’s program of Exchange subsidies. In the spring of 2015, as the Supreme Court considered the case of King v. Burwell—which affected subsidies provided to individuals in states using the federal insurance Exchange, healthcare.gov—multiple Members of Congress introduced legislation that would have frozen enrollment. These bills would have allowed individuals who qualified for subsidies prior to the Court’s ruling to continue to receive them for a transitional period of time, but made other individuals ineligible for such subsidies.[13]

Though the Supreme Court ultimately upheld the subsidies in King v. Burwell, ruling that the words “an Exchange established by the State” also referred to an Exchange run by the federal government, Congress could utilize a similar regime in the reconciliation bill with respect to insurance subsidies—that is, freezing eligibility and enrollment effective the date of the bill’s enactment.[14] However, Congress should only act to freeze eligibility for insurance subsidies if it believes doing so would not cause existing insurance market risk pools to deteriorate during the transition period.

Appropriate Cost-Sharing Subsidies:            Any repeal measure should include a temporary, time-limited appropriation for cost-sharing subsidies currently in dispute. Those subsidies reimburse insurers for the expense of cost-sharing reductions—lower deductibles and co-payments—provided to certain low-income enrollees under Obamacare. In the case of House v. Burwell, the House of Representatives has argued that the text of Obamacare nowhere provides an explicit appropriation for the cost-sharing subsidies, and that the Obama Administration violated the Constitution by funding this spending without an express appropriation.

On May 12, 2016, United States District Court Judge Rosemary Collyer agreed with the House’s position, imposing an injunction (stayed pending appeal) prohibiting the Administration from appropriating funds for the cost-sharing subsidies.[15] The Court of Appeals for the District of Columbia is currently considering the Obama Administration’s appeal of Judge Collyer’s ruling, with further actions on hold until the new Administration takes office.

Some insurers argue that, should the incoming Trump Administration withdraw the cost-sharing subsidies, they have the right to terminate their plans from the Exchanges immediately. The arguments that insurers can withdraw from the markets in 2017 lack merit.[16] Furthermore, analysts have warned for months that an incoming Administration could withdraw the cost-sharing subsidies unilaterally upon taking office.[17] Insurers saw fit to ignore those warnings, and signed up to offer 2017 coverage knowing full well that the cost-sharing subsidies could disappear on short notice, through either court rulings or regulatory action by a new Administration.

However, to provide certainty, Congress should appropriate funds for the cost-sharing subsidies as part of the repeal bill—but only for the length of the transition period provided for in that measure. The Trump Administration should encourage Congress to appropriate funds for the transition period. Once Congress does so, the Trump Administration’s Justice Department can move to dismiss the Obama Administration’s appeal of the case against the House of Representatives, conceding the point that the executive never had authority to appropriate funds for cost-sharing subsidies absent express direction by Congress.

Utilize the Congressional Review Act:            The election outcome notwithstanding, President Obama’s outgoing Administration continues to use the regulatory process to attempt to “box in” his successor. On December 22, 2016, the Administration published a Notice of Benefit and Payment Parameters for the 2018 plan year.[18] In doing so, the Administration specifically waived provisions of the Congressional Review Act, which generally requires a 60-day delayed effective date for major rules. The Department of Health and Human Services (HHS) claimed that such a delay was impracticable for good cause reasons.[19] The 2018 Notice of Benefit and Payment Parameters will therefore take effect 30 days following its display, on January 17, 2017—during President Obama’s last week in office. As a result, President Trump will be unable simply to revoke this regulation unilaterally upon taking office.

However, the Congressional Review Act does provide a vehicle for Congress, in concert with a President Trump, to take action revoking the newest Obamacare regulation. Specifically, the Act provides that a resolution of disapproval, passed by both houses of Congress, will have the effect of nullifying the rule or administrative action proposed.[20] Of particular import, the Congressional Review Act provides for expedited consideration of resolutions of disapproval in the Senate; those limits on debate preclude filibusters, meaning that resolutions of disapproval require a simple, 51-vote majority to pass, rather than the usual 60 votes for legislation subject to a filibuster.

Congress should explore using the Congressional Review Act to pass a resolution of disapproval nullifying the Obama Administration’s last-minute 2018 Notice of Benefit and Payment Parameters. Regardless of whether or not Congress strikes down this last-minute rule, the Trump Administration should act expeditiously—including through use of the “good cause” exemption the Obama Administration cited to rush through its own regulations last month—to provide needed relief to consumers.

 

What the Administration Should Do

The Trump Administration can also play its part in bringing about the promise of repeal, by acting in concert with Congress to undo the effects of Obamacare’s major insurance mandates. Consistent with the actions Congress should take listed above, the incoming Administration should immediately use flexibility to provide relief from Obamacare’s regulatory regime. Whether through a new 2018 Notice of Benefit and Payment Parameters, a series of interim final regulations, or both, these regulations would provide a vehicle for incorporating many of the changes needed to undo Obamacare’s harmful effects, including those listed below.

While the Administration cannot unilaterally change the law—such actions lie solely within the purview of Congress—it can and should take steps to soften the impact of existing mandates, and provide maximum flexibility wherever possible. These steps would stabilize insurance markets during the period following repeal, and provide for an orderly transition to an alternative regime.

Limit Open Enrollment:      Obamacare gives the Secretary of HHS the authority to “require an Exchange to provide for…annual open enrollment periods, as determined by the Secretary for calendar years after the initial enrollment period.”[21] The law requires insurers to accept all applicants without regard to pre-existing conditions or health status—in industry parlance, guaranteed issue—but only within certain limits. Specifically, health insurers may “restrict enrollment in coverage described in such subsection [i.e., guaranteed issue coverage] to open or special enrollment periods.”[22] In other words, the requirement that insurers accept all applicants only applies during open enrollment periods—and the HHS Secretary has the sole power to determine when, and for how long, those open enrollment periods run.

The existing Code of Federal Regulations states that for the 2018 benefit year, open enrollment for individual health insurance will run from November 1, 2017 through January 31, 2018—the exact same three-month period as the 2016 and 2017 open enrollment periods.[23] The incoming Administration can—and should—issue new regulations limiting those open enrollment periods to a much narrower window, to prevent individuals from “gaming the system” and enrolling only after they incur costly medical conditions.

At minimum, it appears eminently reasonable for the new Administration to shorten the open enrollment window down to 30 days—a significant reduction from 2016 and 2017, which saw open enrollment last for one-quarter of the year. If logistical obstacles can be overcome—i.e., could Exchanges process applicants in a shorter period?—the Administration could restrict the open enrollment period even further, to a period of perhaps a couple of weeks. Other observers have suggested tying open enrollment to a period surrounding an individual’s birth date, thus preventing a surge of applicants at one particular point in the year.

Narrowing the length of open enrollment periods, coupled with restrictions on special enrollment periods outlined below, will provide a more controlled and contained environment for insurers to issue policies. Limiting enrollment periods will mitigate against an insurance market that requires carriers to issue policies without imposing financial penalties on individuals who fail to purchase insurance—indeed, will mitigate against the adverse selection insurers suffer from currently, even with the individual mandate in full effect. Because Obamacare gives the Secretary of HHS extremely broad authority to define “open enrollment periods”—other than stating these must occur annually, the statute includes few prescriptions on administrative authority—the Trump Administration should use this authority to maximum effect.

Restrict Special Enrollment Periods:            Insurers have raised numerous complaints about individuals using special periods outside open enrollment to obtain coverage, incur large medical claims, and then drop that coverage upon regaining health. Early in 2016, Blue Cross Blue Shield calculated that special enrollment period customers were 55 percent more costly than those enrolling during the usual annual enrollment period. Likewise, Aetna found that one-quarter of its entire enrollment came from these “special” enrollment periods, and that said enrollees remained on the rolls for an average of fewer than four months—an indication that many only enrolled in the first place to obtain coverage for a specific medical condition or ailment.[24]

Even as insurers demonstrate that individuals have abused special enrollment periods to incur costly medical bills and subsequently cancel coverage, the Obama Administration actually exacerbated the problem its last-minute 2018 Notice of Benefit and Payment Parameters. That rule expanded the number of special enrollment periods, codifying an additional five exemptions allowing eligible individuals to qualify for coverage outside of open enrollment periods.[25]

That said, the Obama Administration has taken some steps to restrict abuse of special enrollment periods. In June 2016, it implemented a process announced in February 2016, which requires documentation from applicants seeking special enrollment periods for the most common conditions—a move, loss of coverage, marriage, birth, or adoption.[26] The Centers for Medicare and Medicaid Services (CMS) claims this documentation requirement reduced the number of special enrollment period applicants by 20 percent.[27] However, a separate effort to require verification of special enrollment period eligibility prior to enrollment will not begin until this coming June, with results only coming in spring 2018.[28]

With respect to special enrollments, the incoming Administration should 1) eliminate all special enrollment periods, other than those required under existing law; and/or 2) accelerate the process of pre-enrollment verification for all special enrollment periods.[29]

Use Exchange User Fees to Lower Premiums:     In its Notice of Benefit Parameters, the Obama Administration has annually imposed a 3.5 percent surcharge, dubbed an “Exchange user fee,” on issuers offering coverage using healthcare.gov, the federally-run Exchange, which those insurers then pass on to consumers. The 2018 version of the document, released December 22, specifically suggested that the 3.5 percent fee paid by insurers (and ultimately by consumers) now exceeds the costs associated with running the federal Exchange:

We have received feedback suggesting that the FFEs [federally-facilitated Exchanges] would be able to increase enrollment by allocating more funds to outreach and education, a benefit to both consumers and issuers. We sought comment on how much funding to devote to outreach and education, and on whether HHS should expressly designate a portion or amount of the FFE user fee to be allocated directly to outreach and enrollment activities, recognizing the need for HHS to continue to adequately fund other critical Exchange operations, such as the call center, healthcare.gov, and eligibility and enrollment activities.[30]

Some commenters regarding the Exchange user fee proposal specifically requested that the Exchange “user fee rate should decrease over time.” HHS rejected this approach for 2018. It did note that “we do anticipate gaining economies of scale from functions with fixed costs, and if so, may consider reducing the FFE user fee based on increased enrollment and premiums in the future.”[31]

Upon taking office, the Trump Administration should act immediately to ensure that the Exchange user fee funds essential Exchange operations only. With the Exchanges now in their fourth year of operation, HHS will not need to spend as much on technological infrastructure as the Department did while standing up the Exchange—and should not, as the Obama Administration suggested, spend the difference on new “slush funds” designed to promote enrollment outreach.

Because the Exchange user fee is based on a percentage of premium, this year’s 20 percent spike in premiums for Obamacare plans has significantly increased funding for the federal Exchange as it is.[32] Moreover, the vast majority of Exchange participants—84 percent, per the most recent enrollee data—receive federal subsidies for their health insurance premiums.[33] Because those federal subsidies directly relate to premium costs, federal taxpayers—and not enrollees themselves—are in many cases paying for any additional, and unnecessary, spending undertaken by the federal Exchange.

To save taxpayers, and to lower premiums for all consumers, the Trump Administration should take immediate steps to reduce the Exchange user fee to the minimum necessary to support Exchange operations—and instruct insurers to rebate the difference to consumers in the form of lower premiums.

Revise Medical Loss Ratio:  Obamacare requires insurers to spend a minimum percentage of premiums on medical claims—a medical loss ratio (MLR).[34] Insurers in the individual market face an 80 percent MLR, while employer plans have an 85 percent requirement. Plans that do not meet the minimum MLR thresholds must return the difference to beneficiaries in the form of rebates.

During Obamacare’s first several years, the MLR requirements have not proven a concern to insurers—largely because they significantly under-estimated premiums for 2014, 2015, and 2016. In fact, the average MLR for individual market plans skyrocketed from 62.3% in 2011 to 93.3% in 2015.[35] Because enrollees proved sicker than anticipated, insurers have paid out a high percentage of premiums in medical claims—indeed, in some cases, have paid out more in claims than they received in premium payments from enrollees (i.e., an MLR over 100%).

However, should the Trump Administration desire to provide additional flexibility for insurers, it could take a more expansive view of “activities that improve health care quality,” considered equivalent to medical claims paid under the MLR formula.[36] Obamacare required the National Association of Insurance Commissioners (NAIC) to, by December 31, 2010, “establish uniform definitions of the activities” under the MLR, including the definition of activities to improve health care quality.[37] However, the statute makes those definitions “subject to the certification of the Secretary,” and while then-HHS Secretary Kathleen Sebelius accepted the NAIC recommendations, the new Administration is not necessarily obliged to do so.

The interim final rule regarding the medical loss ratio requirement provides a roadmap for a Trump Administration to provide regulatory flexibility regarding the MLR, including the definition of “activities that improve health care quality.”[38] The new Administration could also provide relief regarding agents’ and brokers’ fees and commissions—an issue HHS acknowledged in the rule, but did little to ameliorate—and taxes and fees paid by insurers due to regulatory and other requirements.

Reform State Innovation Waivers:            Section 1332 of Obamacare provides for “state innovation waivers,” which can take effect beginning on or after January 1, 2017. The waivers allow states to obtain exemptions from most of the law’s major insurance requirements, as well as the employer and individual mandates, to provide an alternative system of health insurance for its residents. However, the statute requires that any waiver must:

  1. “Provide coverage that is at least as comprehensive as the coverage” defined under the law, as certified by the Medicare actuary;
  2. “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as the law;
  3. “Provide coverage to at least a comparable number of its residents;” and
  4. “Not increase the federal deficit.”[39]

The Obama Administration released a final rule regarding the process for applying for a Section 1332 waiver in early 2012.[40] However, it did not release information regarding the substance of the waivers themselves until late 2015—and then did so only through informal guidance, not a formal regulation subject to notice-and-comment.[41]

The December 2015 guidance exceeded the requirements of the statute in several ways. First, it said the Administration would not consider potential combined savings from a Section 1332 state innovation waiver when submitted in conjunction with a Medicaid Section 1115 reform waiver. In other words, when meeting the deficit neutrality requirement of Section 1332, Medicaid savings could not be used to offset higher costs associated with Exchange reforms, or vice versa.[42]

The guidance also said the Obama Administration would impose additional tests with respect to coverage and affordability—not just examining the impact on state populations as a whole, but effects on discrete groups of individuals.[43] For instance, the guidance noted that “waivers that reduce the number of people with insurance coverage that provides both an actuarial value equal to or greater than 60 percent and an out-of-pocket maximum that complies with Section 1302(c)(1) of [Obamacare] would fail” the affordability requirement.[44] These new mandates effectively prohibit states from using waiver programs to expand access to more affordable catastrophic coverage for individuals.

Due to the four statutory requirements listed above, the Section 1332 waiver program suffers from inherent shortcomings.[45] But because the added restrictions proposed in December 2015 came through informal regulatory guidance, the Trump Administration can and should immediately withdraw that guidance upon taking office. It should also work immediately to establish a more flexible rubric for states wishing to utilize Section 1332 waivers—with respect to both the application process itself and more flexible insurance design that can expand access and affordability for a state’s residents.

Withdraw Contraception Mandate:            Among the “early benefits” of the law taking effect six months after its enactment was a mandate for preventive care. Specifically, the law requires first-dollar coverage (i.e., without cost-sharing) of several preventive services, including women’s preventive health screenings.[46]

On December 20, 2016, the Health Resources and Services Administration (HRSA) released the most recent women’s preventive services guidelines. These guidelines, as before, required that “the full range of female-controlled U.S. Food and Drug Administration approved contraceptive methods, effective family planning practices, and sterilization procedures be available as part of contraceptive care.”[47]

The Trump Administration should upon taking office withdraw the HRSA benefit mandates—including the requirement to provide contraception coverage. While these particular mandates may have a slight impact on premiums, removing them would reduce premiums nonetheless. More importantly, they would restore the rights of conscience to those individuals and organizations who have been forced to violate their deeply-held religious beliefs to cover contraception and other procedures they object to.[48]

Modify Essential Health Benefits and Actuarial Value:        Among Obamacare’s many new mandated insurance benefits, two in particular stand out. First, the law provides for a series of “essential health benefits”—ten categories of health services that all qualified plans must cover.[49] While the essential health benefits address the breadth of health insurance coverage, actuarial value—or the percentage of annual health expenses paid by an insurance policy on average—addresses the depth of that coverage. The law categorizes individual health plans in four “tiers” based on actuarial value: Bronze plans with an average actuarial value of 60 percent; silver plans, 70 percent; gold plans, 80 percent; and platinum plans, 90 percent.[50]

Both directly and indirectly, the essential health benefits and actuarial value requirements raise premiums—by forcing individuals to buy richer coverage, and then by inducing additional demand for health care through that richer coverage. The Administration’s own rule regarding essential health benefits admitted that the law’s requirements include provisions not previously covered by most forms of health insurance, including “rehabilitative and habilitative services and devices.”[51] Likewise, a study in the journal Health Affairs concluded that the actuarial value requirements would raise premiums, as most pre-Obamacare individual market policies did not meet the new mandated benefit thresholds.[52]

However, the final rules regarding essential health benefits and plan actuarial value provide opportunities to expand benefit flexibility.[53] For instance, the new Administration could provide states with more options for declaring benchmark plans that meet the essential health benefit requirements under the statute. The new Administration could also expand the de minimis variation standards for actuarial value measures required by the law.[54] Allowing for additional variation and flexibility could have a significant impact in reducing premiums, as the Congressional Budget Office concluded in 2009 that the essential benefits and actuarial value standards would collectively raise premiums by 27 to 30 percent, all else equal.[55]

Enhanced Flexibility for Businesses:             On September 13, 2013, the Treasury Department issued Notice 2013-54, which stated that an arrangement whereby an employer reimburses some or all of an employee’s expenses for the purchase of individual health insurance—whether through a Health Reimbursement Arrangement (HRA) or some other means—would be considered a group health plan.[56] As a result, businesses using HRAs need to meet all of Obamacare’s regulatory reforms, such as prohibiting annual limits on the dollar value of essential health benefits.[57] Group health plans failing to meet those requirements trigger a penalty of $100 per day, per individual.[58]

This provision sparked widespread uproar when it first went into effect in July 2015, as the Obama Administration threatened fines of $36,500 per employee for employers who helped fund their employees’ health coverage.[59] Members of Congress introduced standalone legislation exempting small businesses from this requirement.[60] This provision was eventually incorporated into the 21st Century Cures Act, which President Obama himself signed into law on December 13, 2016.[61] As a result, small businesses with under 50 employees can now provide contributions to their workers’ individual health insurance premiums without triggering Obamacare’s regulatory regime.

Expanding upon the precedent of a law President Obama himself signed, the Trump Administration should withdraw Notice 2013-54, build on Congress’ actions, and allow businesses of all sizes the ability to reimburse employees’ premium costs without triggering massive fines. Actions in this vein would have salutary benefits in two respects: They would remove more businesses from Obamacare’s onerous regulatory requirements, while encouraging the use of defined contribution health insurance for employees.

 

Next Steps and the Pathway Forward

Following more than six years of frustration for the American people, the promise of repealing Obamacare is finally within reach. While passing legislation that unwinds Obamacare in an orderly, stable manner will require policy-makers to act with care, Congress and the new Trump Administration can use last year’s reconciliation legislation as the basis for action. Specifically, Congress should:

  • Seek to expand the scope of last year’s reconciliation legislation to encompass Obamacare’s major insurance regulations, consistent with budgetary scores and past practice and precedents within the Senate;
  • Add a provision to last year’s reconciliation legislation freezing enrollment in Medicaid expansion, effective either upon enactment or shortly thereafter;
  • Explore adding a provision to last year’s reconciliation legislation freezing enrollment in Exchange subsidies, provided doing so will not de-stabilize insurance markets;
  • Appropriate funds for the cost-sharing subsidies in reconciliation legislation, but only for the defined length of the Obamacare transition period; and
  • Explore use of the Congressional Review Act to pass a resolution of disapproval nullifying the Obama Administration’s last-minute Notice of Benefit and Payment Parameters for 2018.

Likewise, the Trump Administration can take several regulatory steps to enhance flexibility and provide certainty during the transition period:

  • Limit annual open enrollment to the shortest period feasible, and in no case longer than one month;
  • Restrict the use of special enrollment periods, by withdrawing all those added by the Obama Administration and not included in statute, and/or requiring pre-enrollment verification for all special enrollment periods;
  • Provide that, for states using the federal Exchange, any portion of the 3.5 percent Exchange user fee not used to cover annual operating costs be refunded to enrollees, thus lowering their premiums;
  • Revise the medical loss ratio requirements to provide more flexibility for insurers;
  • Immediately withdraw the December 2015 guidance regarding Section 1332 state innovation waivers, and provide maximum flexibility within the existing statutory requirements for states seeking to mitigate the harmful effects of Obamacare’s insurance mandates;
  • Withdraw the contraception mandate that raises premiums and hinders freedom of conscience;
  • Modify essential health benefits and actuarial value requirements to provide maximum flexibility within the statutory framework;
  • Expand upon Congress’ efforts allowing small businesses to reimburse their employees’ health insurance premiums without facing massive fines, by withdrawing the September 2013 IRS notice and extending flexibility to as many employers as possible; and
  • Drop the Obama Administration’s appeal of House v. Burwell once Congress provides a temporary, time-limited appropriation for cost-sharing subsidies as part of the repeal reconciliation bill.

Collectively, this menu of actions would help to unwind most of Obamacare’s harmful effects, provide for an orderly transition, and pave the way for Congress to consider and pass alternative legislation designed to lower health care costs. The promise of Obamacare repeal is within reach; it’s time for Congress and the new Administration to seize it.

 

 

[1] “Policy Notifications and Current Status, by State,” Associated Press December 26, 2013, http://finance.yahoo.com/news/policy-notifications-current-status-state-204701399.html; Angie Drobnic Holan, “Lie of the Year: ‘If You Like Your Health Care Plan, You Can Keep It,’” Politifact December 12, 2013, http://www.politifact.com/truth-o-meter/article/2013/dec/12/lie-year-if-you-like-your-health-care-plan-keep-it/.

[2] Drew Gonshorowski, “How Will You Fare in the Obamacare Exchanges?” Heritage Foundation Issue Brief No. 4068, October 16, 2013, http://www.heritage.org/research/reports/2013/10/enrollment-in-obamacare-exchanges-how-will-your-health-insurance-fare; Department of Health and Human Services, “Health Plan Choice and Premiums in the 2017 Health Insurance Marketplace,” ASPE Research Brief, October 24, 2016, https://aspe.hhs.gov/sites/default/files/pdf/212721/2017MarketplaceLandscapeBrief.pdf.

[3] Cynthia Cox and Ashley Semanskee, “Preliminary Data on Insurer Exits and Entrants in 2017 Affordable Care Act Marketplaces,” Kaiser Family Foundation, August 28, 2016, http://kff.org/health-reform/issue-brief/preliminary-data-on-insurer-exits-and-entrants-in-2017-affordable-care-act-marketplaces/.

[4] Section 206 of H.R. 3762 had the effect of preventing Medicaid plans from providing reimbursements to certain providers, including Planned Parenthood.

[5] Joe Antos and Jim Capretta, “The Problems with ‘Repeal and Delay,’” Health Affairs January 3, 2017, http://healthaffairs.org/blog/2017/01/03/the-problems-with-repeal-and-delay/.

[6] Ibid.

[7] Paul Winfree and Brian Blase, “How to Repeal Obamacare: A Roadmap for the GOP,” Politico November 11, 2016, http://www.politico.com/agenda/story/2016/11/repeal-obamacare-roadmap-republicans-000230.

[8] Ibid.

[9] Congressional Budget Office, baseline estimates for federal subsidies for health insurance, March 2016, https://www.cbo.gov/sites/default/files/recurringdata/51298-2016-03-healthinsurance.pdf, Table 3, p. 5; Edmund Haislmaier and Drew Gonshorowski, “2015 Health Insurance Enrollment: Net Increase of 4.8 Million, Trends Slowing,” Heritage Foundation Issue Brief No. 4620, October 31, 2016, http://thf-reports.s3.amazonaws.com/2016/IB4620.pdf.

[10] Jonathan Ingram, Nic Horton, and Josh Archambault, “Welfare to Work: How States Can Unwind Obamacare Expansion and Restore the Working Class,” Forbes December 3, 2014, http://www.forbes.com/sites/theapothecary/2014/12/03/welfare-to-work-how-states-can-unwind-obamacare-expansion-and-restore-the-working-class/#455cad6923ec.

[11] Craig Garthwaite, Tal Gross, and Matthew Notowidigdo, “Public Health Insurance, Labor Supply, and Employment Lock,” National Bureau of Economic Research Working Paper 19220, July 2013, http://www.nber.org/papers/w19220.

[12] Christina Cassidy, “Medicaid Enrollment Surges, Stirs Worry about State Budgets,” Associated Press July 19, 2015, http://www.bigstory.ap.org/article/c158e3b3ad50458b8d6f8f9228d02948/medicaid-enrollment-surges-stirs-worry-about-state-budgets.

[13] See for instance Section 4 of Winding Down Obamacare Act, S. 673 (114th Congress), by Sen. Ben Sasse (R-NE), and Section 4(b) of Preserving Freedom and Choice in Health Care Act, S. 2016 (114th Congress), by Sen. Ron Johnson (R-WI).

[14] King v. Burwell, 576 U.S. __ (2015).

[15] United States District Court for the District of Columbia, Civil Action No. 14-1967, House v. Burwell, ruling by Judge Rosemary Collyer, May 12, 2016, https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2014cv1967-73.

[16] The contract between CMS and insurers on the federal Exchange notes that insurers developed their products based on the assumption that cost-sharing reductions “will be available to qualifying enrollees,” and can withdraw if they are not. However, under the statute, enrollees will always qualify for the cost-sharing reductions—that is not in dispute. The House v. Burwell case instead involves whether or not insurers will receive federal reimbursements for providing the cost-sharing reductions to enrollees. This clause was poorly drafted by insurers’ counsel, and therefore has no applicability to House v. Burwell; insurers have no ability to withdraw from Exchanges in 2017, even if the Trump Administration stops reimbursing insurers. See https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Plan-Year-2017-QHP-Issuer-Agreement.pdf, V.b, “Termination,” p. 6.

[17] Chris Jacobs, “What if the Next President Cuts Off Obamacare Subsidies for Insurers?” Wall Street Journal May 5, 2016, http://blogs.wsj.com/washwire/2016/05/05/what-if-the-next-president-cuts-off-obamacare-subsidies/.

[18] Department of Health and Human Services, interim final rule regarding “2018 Notice of Benefit and Payment Parameters,” Federal Register December 22, 2016, https://www.gpo.gov/fdsys/pkg/FR-2016-12-22/pdf/2016-30433.pdf.

[19] Ibid., pp. 94159-60.

[20] 5 U.S.C. 802. For more information, see Maeve Carey, Alissa Dolan, and Christopher Davis, “The Congressional Review Act: Frequently Asked Questions,” Congressional Research Service Report R43992, November 17, 2016, https://fas.org/sgp/crs/misc/R43992.pdf.

[21] 42 U.S.C. 13031(c)(6)(B), as codified by Section 1311(c)(6)(B) of Patient Protection and Affordable Care Act, P.L. 111-148.

[22] Section 2702(b)(1) of the Public Health Service Act, 42 U.S.C. 300gg-1(b)(1), as modified by Section 1201(2)(A) of PPACA.

[23] 45 C.F.R. 155.410(e)(2).

[24] Paul Demko, “Gaming Obamacare,” Politico January 12, 2016, http://www.politico.com/story/2016/01/gaming-obamacare-insurance-health-care-217598.

[25] 2018 Notice of Benefit and Payment Parameters, pp. 94127-31.

[26] Centers for Medicare and Medicaid Services, “Fact Sheet: Special Enrollment Confirmation Process,” February 24, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-02-24.html.

[27] Centers for Medicare and Medicaid Services, “Pre-Enrollment Verification for Special Enrollment Periods,” https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/pre-enrollment-sep-fact-sheet-final.pdf.

[28] Ibid.

[29] 42 U.S.C. 13031(c)(6)(C), as codified by Section 1311(c)(6)(C) of PPACA, requires the Secretary to establish special enrollment periods for individual coverage as specified by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) for group coverage, codified at 26 U.S.C. 9801.

[30] 2018 Notice of Benefit and Payment Parameters, p. 94138.

[31] Ibid., p. 94138.

[32] HHS published an average 2017 premium increase for healthcare.gov states of 25 percent, and a median increase of 16 percent. See HHS, “Health Plan Choice and Premiums in 2017,” Table 2, p. 6.

[33] Centers for Medicare and Medicaid Services, “First Half of 2016 Enrollment Snapshot,” October 19, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-10-19.html.

[34] Section 2718 of the Public Health Service Act, 42 U.S.C. 300gg-18, as revised by PPACA Sections 1001(1) and 10101(f).

[35] Centers for Medicare and Medicaid Services, “The 80/20 Rule Increases Value for Consumers for Fifth Year in a Row,” November 18, 2016, https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/Medical-Loss-Ratio-Annual-Report-2016-11-18-FINAL.pdf.

[36] Section 2718(a)(3) of the Public Health Service Act, 42 U.S.C. 300gg18(a)(3), as revised by PPACA Sections 1001(1) and 10101(f).

[37] Section 2718(c) of the Public Health Service Act, 42 U.S.C. 300gg-18(c), as revised by PPACA Sections 1001(1) and 10101(f).

[38] Department of Health and Human Services, interim final rule regarding “Implementing Medical Loss Ratio Requirements under the Patient Protection and Affordable Care Act,” Federal Register December 1, 2010, https://www.gpo.gov/fdsys/pkg/FR-2010-12-01/pdf/2010-29596.pdf.

[39] 42 U.S.C. 18052(b)(1)(A), as codified by Section 1332(b)(1)(A) of PPACA.

[40] Departments of Treasury and Health and Human Services, final rule regarding “Application, Review, and Reporting Process for Waivers for State Innovation,” Federal Register February 27, 2012, https://www.gpo.gov/fdsys/pkg/FR-2012-02-27/pdf/2012-4395.pdf.

[41] Departments of Treasury and Health and Human Services, guidance regarding “Waivers for State Innovation,” Federal Register December 16, 2015, https://www.gpo.gov/fdsys/pkg/FR-2015-12-16/pdf/2015-31563.pdf.

[42] Ibid., p. 78134.

[43] Ibid., p. 78132.

[44] Ibid., p. 78132.

[45] Chris Jacobs, “What’s Blocking Consensus on Health Care?” Wall Street Journal July 17, 2015, http://blogs.wsj.com/washwire/2015/07/17/whats-blocking-consensus-on-health-care/.

[46] Section 2713 of the Public Health Service Act, 42 U.S.C. 300gg-13, as revised by PPACA Section 1001(1).

[47] Health Resources and Services Administration, “Women’s Preventive Services Guidelines,” December 20, 2016, https://www.hrsa.gov/womensguidelines2016/index.html.

[48] United States Conference of Catholic Bishops, “The HHS Mandate for Contraception/Sterilization Coverage: An Attack on Rights of Conscience,” January 20, 2012, http://www.usccb.org/issues-and-action/religious-liberty/conscience-protection/upload/preventiveqanda2012-2.pdf.

[49] 42 U.S.C. 18022, as codified by Section 1302 of PPACA.

[50] 42 U.S.C. 18022(d), as codified by Section 1302(d) of PPACA.

[51] Department of Health and Human Services, final rule on “Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation,” Federal Register February 25, 2013, https://www.gpo.gov/fdsys/pkg/FR-2013-02-25/pdf/2013-04084.pdf, pp. 12860-61.

[52] Jon Gabel, et al., “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold through Exchanges as of 2014,” Health Affairs May 2012, http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082.abstract.

[53] HHS, final rule on “Essential Health Benefits and Actuarial Value.”

[54] 42 U.S.C. 18022(d)(3), as codified by Section 1302(d)(3) of PPACA.

[55] Congressional Budget Office, letter to Sen. Evan Bayh regarding health insurance premiums, November 30, 2009, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/11-30-premiums.pdf, pp. 9-10.

[56] Internal Revenue Service, Notice 2013-54, September 13, 2013, https://www.irs.gov/pub/irs-drop/n-13-54.pdf.

[57] Section 1563(f) of PPACA added Section 9815 to the Internal Revenue Code, which incorporated most of the regulatory requirements of the law to group health plans.

[58] 26 U.S.C. 4980D(b)(1).

[59] Grace-Marie Turner, “Small Businesses Threatened with $36,500 IRS Fines for Helping Employees with Health Costs,” Forbes June 30, 2016, http://www.forbes.com/sites/gracemarieturner/2015/06/30/small-businesses-threatened-with-36500-irs-fines-for-helping-employees-with-health-costs/#53750b3d4a0e.

[60] The Small Business Healthcare Relief Act, introduced by Reps. Charles Boustany (R-LA) and Mike Thompson (D-CA), H.R. 2911 of the 114th Congress; a companion measure was introduced by Sens. Chuck Grassley (R-IA) and Heidi Heitkamp (D-ND) as S. 1697 of the 114th Congress.

[61] Section 18001 of 21st Century Cures Act, P.L. 114-255.

Putting Obamacare in a Deep Freeze

As they debate various ways to repeal and replace Obamacare, Republicans in Congress have proposed a transition between the current regime and the more market-oriented solution they wish to create. As part of that transition, Congress should explore putting an immediate freeze on new Obamacare enrollment. Such a freeze would allow currently enrolled Americans to maintain their coverage while halting the growth in spending on the law’s costly taxpayer subsidies.

Medicaid Freeze

There are good policy reasons to include a freeze on enrollment as part of repeal legislation. The “Better Way” alternative to Obamacare released by Speaker Ryan in June proposed that “states that have not expanded Medicaid under Obamacare as of January 1, 2016…would not be able to do so.” If the House intends to freeze enrollment by preventing new states from implementing Medicaid expansion, reason dictates that it should also prevent new individuals in states that have already expanded Medicaid from joining the entitlement.

Previous research suggests that the existence of a Medicaid entitlement for the able-bodied significantly decreases job-search activity, employment, and enrollment in employer-sponsored health coverage. The Foundation for Government Accountability (FGA) has demonstrated that freezing enrollment would allow individuals currently on Medicaid to transition out of poverty and into work in a relatively short period of time, and that there is broad public support for such a move.

Freezing enrollment would also begin to unwind the inequities in the current system, which rewards states that have expanded Medicaid for discriminating against the most vulnerable. Some governors have indicated their desire to preserve the expansion in their states. But keeping Medicaid expansion in some states would set up a direct conflict with other states that are explicitly prohibited from expanding under the House Republican plan. As a compromise, Congress should instead freeze enrollment in those states that have already expanded Medicaid, as a way to begin dismantling the new entitlement for the able-bodied.

King v. Burwell

When it comes to insurance Exchanges, Republicans had previously proposed freezing enrollment in Obamacare’s subsidy regime. Last year, the Supreme Court considered the case of King v. Burwell, which had the potential to strike down taxpayer-funded subsidies in states with a federally run insurance exchange (i.e.  most of them). Ahead of that case, Senators Ron Johnson and Ben Sasse both proposed different transitional arrangements that would allow individuals receiving subsidies at the time of the ruling to continue their coverage for some period of time, without allowing new individuals to qualify for taxpayer-funded coverage.

Though the Supreme Court ultimately upheld the subsidies in King v. Burwell, the transition plans by Sasse and Johnson provide just as sensible a template now as they did then. Admittedly, insurers may not want to offer coverage where only unsubsidized individuals can join exchanges, as those unsubsidized individuals would likely be the costliest to insure. But the plans laid out by Sasse and Johnson provide two possible blueprints for unwinding Obamacare, including its taxpayer-funded exchange subsidies.

Obama Precedent

In considering the practical effects of an enrollment freeze, Republicans should examine how President Obama tried to minimize the impact of his “Lie of the Year” — “If you like your plan, you can keep it.” When millions of Americans received cancellation notices in the fall of 2013, the Obama Administration allowed individuals to keep their prior coverage temporarily. This reprieve was ultimately extended until December 2017.

By allowing some individuals to keep their pre-Obamacare coverage, Obama’s plan-cancellation “fix” solved a political problem, minimizing the number of individuals thrown off their current coverage at one time. Extending the “fix” for several years also limited disruption, as natural “churning” in insurance markets will reduce the number of individuals with affected policies between now and December 2017.

Of course, President Obama’s administrative actions in 2013 violated the law. Even liberals have acknowledged that Obama abrogated his constitutional duties by publicly advertising that his Administration would not enforce the ACA’s statutory requirements. But Congress can and should seek to minimize disruption in a legal way, by explicitly including an enrollment freeze in its repeal legislation. With Obamacare’s coverage gains coming almost entirely from Medicaid expansion, freezing enrollment will allow for a smoother transition into the new system Republicans intend to create.

This post was originally published at National Review.

Is House v. Burwell About Statute or the Constitution?

Last Thursday, the Obama administration suffered a legal setback, when a federal judge in Washington ruled that the administration exceeded its authority by paying out cost-sharing subsidies to health insurers under the Affordable Care Act.

The administration will doubtless appeal the case, which was brought by the Republican-led House of Representatives, but whether those appeals succeed may well depend on whether courts view the case as one of statutory interpretation, or one with constitutional implications.

In its briefs in the case, the administration tried to portray House v. Burwell as a successor case to King v. Burwell, another lawsuit surrounding Obamacare subsidy payments, which the Supreme Court decided in June 2015.

In upholding Obamacare subsidies in King v. Burwell, the Supreme Court ruled last year that courts should not interpret conflicting sections of a statute in such a way that would lead to absurd consequences.

In the current case, government attorneys write that the Affordable Care Act statute, which includes an explicit appropriation for subsidized premium payments to insurers, provides enough authority for the administration likewise to disburse a separate program of subsidies to cover discounts for low-income consumers.

The administration attorneys say ending those subsidies would be a similar absurd outcome.

In her decision against the administration, Judge Rosemary Collyer of the U.S. District Court for the District of Columbia disagreed on both counts. Calling House v. Burwell “fundamentally different” from King v. Burwell, she framed the issue as “a failure to appropriate, not a failure in drafting.” Whereas King centered on mutually contradictory language under which “the statute could not function if interpreted literally,” in House the case revolves around the absence of language—namely, lack of a specific appropriation for the cost-sharing subsidies, as required by Article I of the Constitution. And while consequences might result if the House does not provide an explicit appropriation for the cost-sharing subsidies, “that is Congress’ prerogative; the Court cannot override it” by finding an appropriation where it is clear that none exists.

Judge Collyer’s decision last week echoes her procedural ruling last September. In ruling that the House had standing to bring its suit, she dismissed other portions of the House’s original case, relating to the administration’s unilateral delay of Obamacare’s employer mandate. She distinguished any disputes arising from the implementation or interpretation of a statute as quite different from the administration spending funds not appropriated—a constitutional injury worthy of court intervention, to protect the House’s “power of the purse” and separation of powers among the branches.

Such a distinction could prove crucial at the appellate stage. If viewed as a case of two parties differing on the interpretation of a statute, the House could lose its case on standing grounds—and the Supreme Court, having already heard multiple challenges to Obamacare, may decline to consider the case entirely. Conversely, if viewed as the executive exceeding its constitutional prerogatives, the Court of Appeals and Supreme Court may look more kindly on the House’s argument. Both for the political branches and for Obamacare, much hangs in the balance.

This post was originally published at the Wall Street Journal Think Tank blog.

What’s Blocking Consensus on Health Care

In the wake of the Supreme Court’s King v. Burwell ruling, some have argued that a more bipartisan approach to health policy may emerge. But fundamental philosophical disagreements between liberals and conservatives suggest that rapprochement will be difficult.

Philosophical disagreements played into in the debate over pre-Obamacare health coverage. Many conservatives argued that people should be allowed to keep their plans (as the president originally promised). Most also want to liberalize the ACA’s definition of “insurance.” That involves widening the age rating bands—older people will pay a little more, so younger people can buy cheaper policies—and eliminating some benefit requirements so that, to use a frequently cited example, single men don’t have to purchase pregnancy coverage and retired couples don’t have to buy plans that cover well-baby visits.

In a speech in October 2013, just after the failed HealthCare.gov launch, President Barack Obama talked about how some Americans have “cut-rate plans that don’t offer real financial protection in the event of a serious illness or an accident.” The administration had always wanted to eliminate some plans. Political pressure and the technical meltdowns of many exchanges upon their launch that fall forced the administration to extend the period for which some plans were grandfathered. But this was a temporary concession to political reality; its objective has not changed.

Another example of administration flexibility working toward its preferred ends involves the program that allows states to seek years-long waivers from certain provisions of the ACA. By one argument, the “State Innovation Waiver” would allow states to “alter the ACA’s generous ‘minimum essential benefits’ requirements,” which mandate types of coverage. Some of those requirements involve coverage that many people don’t want or need, and that contribute to insurance premium increases. Language in section 1332 of the ACA says that states using a waiver must cover as many individuals, with at least as comprehensive insurance benefits. In other words, states can alter the “minimum essential benefits”—but only in a way that makes them more generous, not less so. If states want to prioritize resources for certain groups—say, individuals with disabilities—over coverage of able-bodied adults, the “flexibility” in Obamacare would prove elusive.

The administration has also been inflexible about some approaches to state Medicaid expansion. Utah proposed adding job search requirements as part of broadening the program, but the administration refused to go along. Last year, Pennsylvania’s then-governor, Tom Corbett (R), proposed a mandatory work/job-search requirement, but administration opposition led to the proposal becoming a voluntary job referral service.

Ideally, states function as laboratories of democracy, and one state’s experiments can spark broader national trends. But when it comes to health care, the administration and Obamacare are offering little flexibility to states whose leaders have differing philosophical objectives. This suggests that, at least in the near term, bipartisan health experiments will remain an elusive goal.

This post was originally published at the Wall Street Journal Think Tank blog.

Gov. Jindal Op-Ed: Supreme Court Decision Is Not the End of the Debate

As a matter of law, the Court’s decision upholding subsidies for states participating in the federally run insurance exchange, healthcare.gov, violates the plain text of Obamacare. The statute expressly restricted insurance subsidies to those individuals purchasing coverage through an “Exchange established by the state.” But just as Chief Justice Roberts three years ago decreed that the individual mandate functioned as a tax, even though both Congress and President Barack Obama stated that it wasn’t, the Court decided that “Exchange established by the state” meant any type of Exchange, whether established by states or by Washington.

It’s a sad outcome for the rule of law — and the English language. But when it comes to the political debate surrounding Obamacare, the Court’s ruling ultimately decides little. Of course, Obama, who took an entirely predictable victory lap yesterday, would have you believe otherwise. But we’ve seen his triumphalism before — and have seen it come crashing back to reality.

Three years ago, Obama stated he wouldn’t “refight old battles,” mere hours after seven Supreme Court justices — including his own former solicitor general — struck down the law’s mandatory Medicaid expansion as unconstitutional “economic dragooning” of the states. On election night 2012, the president promised to “move forward” — months before at least 4.7 million Americans received insurance cancellation notices thanks to Obamacare. And this April, the president arrogantly declared that “the repeal debate is and should be over” — mere weeks before his native state of Hawaii shut its failed insurance exchange, an effort the federal government spent more than $200 million funding.

So, much as the President would like the debate on Obamacare to be over, it isn’t. The debate persists in large part because the law has singularly failed in its prime objective: Containing health care costs. Consider why this Supreme Court case mattered so much to the administration in the first place. The law spends over $1.7 trillion on subsidized coverage to make insurance more “affordable,” largely to offset the new mandates and regulations that have raised the price of insurance.

And with myriad insurers proposing double-digit premium increases for next year — some as high as 50% — candidate Obama’s 2008 promise to lower insurance premiums by $2,500 per family is further away then ever. No wonder the law remains singularly unpopular. When it comes to winning the debate on Obamacare, there is still all to play for.

But in order to win, we conservatives first have to play. That means outlining our alternative vision for health care: How we would restore freedom and choice to a health care sector currently lacking for both — and most importantly, how we would slow, and hopefully reverse, the trend of skyrocketing health care costs.

As I write this, I stand as the sole major declared presidential candidate (with the possible exception of Bernie Sanders) to put forward my vision on health care, and an alternative to Obamacare. As proud as I am of my plan, that is a boast I wish I were not able to make. Because Republicans, from the top down, must outline a clear and coherent vision for health care to win the trust of the American people to repeal this President’s health law.

While we should be shouting our vision from the rooftops, many of my fellow candidates have managed barely a whisper about how exactly they would repeal Obamacare, or what they would do to tackle the main issue plaguing our health care system: rising costs. Sen. Mike Lee recently stated that lack of an Obamacare replacement plan should be a disqualifier for any conservative presidential candidate. He’s absolutely right. We owe it to the American people to release our plans well before November 2016, and to have a robust debate within our party about what should come after Obamacare.

Because, contrary to this President’s self-proclaimed edicts, yesterday’s Supreme Court decision is not the end of the debate on Obamacare.

Now that the Supreme Court has ruled, the debate shifts back to the elected branches of government — the ones that caused our health care mess in the first place. It is there that conservatives can complete our work to repeal Obamacare.

This post was originally published at Time.

A House Budget Response to High Court Ruling on Health Subsidies?

While the Supreme Court weighs King v. Burwell–the lawsuit questioning the federal government’s authority to provide financial assistance to people who buy insurance in the 37 states using federally operated insurance exchanges–many have focused on potential responses to the outcome. Language in the budget resolution unveiled this week appears to lay the groundwork for the House of Representatives to address this ruling through budget reconciliation procedures.

Section 2002 of the budget conference report lays out special procedures for budget reconciliation in the House. That section instructs the House Budget Committee chairman to use the Congressional Budget Office’s March 2015 budgetary baseline “if the estimates used to determine the compliance of such measures with the budgetary requirements included in this concurrent resolution are inaccurate because adjustments made to the baseline are inconsistent with the assumptions underlying the budgetary levels set forth in this concurrent resolution. Such inaccurate adjustments made after the adoption of this concurrent resolution may include selected adjustments for rule-making, judicial actions, adjudication, and interpretative rules that have major budgetary effects and are inconsistent with the assumptions underlying the budgetary levels set forth in this concurrent resolution.”

Simply put: This language allows the Budget Committee chairman to disregard the potential budgetary impacts of “judicial actions” and “adjudication”—such as a Supreme Court ruling in King v. Burwell—that take place after a budget is adopted. CBO is directed to do likewise.

Here’s how it might work. After the court’s ruling in King v. Burwell is issued, CBO would probably update its spending estimates to reflect any fiscal implications arising from the ruling. In the summer of 2012, the Supreme Court’s ruling in National Federation of Independent Business v. Sebelius made Medicaid expansion optional for states; CBO said three weeks after the ruling that this change would reduce projected spending on the law by $84 billion over 10 years.

If the court strikes down federal insurance subsidies, CBO is likely to reduce its spending estimates for the health-care law, to reflect fewer people receiving subsidies, and could also reduce its revenue estimates because fewer people receiving subsidies would eliminate the employer and individual mandate penalties in many cases. Once CBO revises its baseline, any legislative action restoring prior spending levels—whether as a temporary transition to prevent dislocation for those who purchased coverage through the exchanges, a block grant to states providing additional flexibility, or a permanent extension of subsidies—would ordinarily be scored by CBO as increasing both spending and the deficit.

But the language in the budget resolution would allow the House Budget Committee chairman to revert to the pre-King baseline—meaning that legislation designed to address the ruling would not be scored as a spending increase and could be scored as a spending cut, when compared to the spending baseline currently in effect.

The resolution applies these special procedures only in the House; other procedural hurdles could apply in the Senate. But the inclusion of this language in the budget suggests that the House leadership wants to address any King v. Burwell ruling legislatively—and do so through budget reconciliation.

This post was originally published in the Wall Street Journal Think Tank blog.

The Tax and Spending Implications of King v. Burwell

A PDF of this memo is available through America Next.

Many analysts have talked the potential implications of the upcoming Supreme Court case of King v. Burwell, which debates the legality of Obamacare insurance subsidies offered in the 37 states that have not established state-run insurance Exchanges.1 However, few have noticed one key implication: A Court ruling striking down the subsidies in those 37 states would result in both a net tax cut and a decrease in federal spending and deficits. Conversely, subsequent actions, whether by Congress or by states, to re-establish the flow of premium subsidies will raise taxes, raise spending, and increase the deficit.

Tax Implications

A Court ruling striking down the subsidies in the 37 states that have chosen not to establish state-run Exchanges would have several follow-on effects for other provisions of the law. Recently updated Congressional Budget Office (CBO) baseline estimates2 illustrate the magnitude of these implications if applied nationwide to all 50 states:

  1. Most obviously, the premium subsidies would disappear in the states that have not established their own Exchanges. While Obamacare calls these subsidies premium tax credits, most of the credits are paid on a refundable basis—that is, government subsidies to individuals and families with no income tax liability. CBO and other budget scorekeepers consider such refundable credits government outlays, and not tax cuts/revenue reductions. Eliminating the subsidies nationwide would result in a $775 billion reduction in outlays—the refundable/spending portion of the credits—over ten years, while increasing revenues—i.e., raising taxes for recipients who had actual income tax liability prior to receiving their subsidies—by $134 billion in the same period3.
  2. Because Obamacare’s employer mandate penalties only apply when employees have received premium subsidies, the employer mandate would not apply in states that have not created Exchanges, and whose citizens are therefore ineligible for subsidies.4 Nationally, eliminating the employer mandate would result in a $164 billion tax cut over ten years.5
  3. The individual mandate would be significantly weakened in states without state Exchanges. The law provides an exemption for all those for whom insurance premiums exceed 8.05 percent of income, after the application of subsidies.6 If subsidies become unavailable in the 37 states that have not established their own Exchanges, virtually all households receiving subsidies— those with incomes under 400 percent of the federal poverty level (FPL)—would become exempt from the mandate.7 In June 2014, CBO estimated that households with incomes under 400 percent FPL will pay 39% of the total mandate penalties to be collected in 2016.8 Extrapolating this 39% number to the ten-year estimated revenue raised by the mandate—$47 billion, according to CBO’s recent baseline—yields a total tax cut of $18.3 billion from the weakening of the mandate penalties.9

Thus, if subsidies were eliminated in every state, net tax liabilities would fall by approximately $48.3 billion over ten years—which includes the tax cut associated with effectively eliminating the employer mandate ($164 billion), and the revenue loss associated with weakening the individual mandate ($18.3 billion), offset by the tax increase associated with the revenue portion of the premium tax credits ($134 billion). Conversely, restoring those subsidies if eliminated by a Court ruling would impose a net tax increase of $48.3 billion over ten years.

Spending and Deficit Implications

Because, as noted earlier, the vast majority of the premium subsidies are refundable tax credits, which are considered government outlays, a ruling striking down the subsidies would lower federal spending appreciably. Eliminating the subsidies in all 50 states would lower federal spending by $775 billion over the next ten years.10 As a result, despite the $48.3 billion tax cut described above, eliminating the subsidies nationwide would reduce the deficit by approximately $726.7 billion for the coming decade. But if Congress or the states took action to restore the flow of subsidies, those measures would instead increase spending—and the federal deficit— by hundreds of billions of dollars.

Admittedly, the King v. Burwell case applies only to the 37 states that have not created an Exchange, and not all 50 states. However, whether examining one state, 37 states, or all 50 states, the trend from the CBO data is clear: Striking down the subsidies would 1) cut taxes on net; 2) reduce federal spending; and 3) reduce the deficit. Conversely, any action—whether by states, Congress, or both—to restore the pre-King status quo would 1) raise taxes; 2) raise federal spending; and 3) raise the deficit.

Moreover, this analysis may represent a conservative estimate with regards to the tax cut implications of King v. Burwell, as a favorable Court ruling could have a larger-than-expected impact on the applicability of the individual mandate. Withdrawing subsidies from federally-run Exchanges could also impact premium affordability for families with incomes above 400% FPL, reducing tax liabilities beyond the $18.3 billion estimated above.

Conclusion

The dispute in King v. Burwell revolves around whether the Obama Administration can unilaterally change what the law says. The text of the statute is clear that federal subsidies apply only to those buying policies from an “Exchange established by the state.”11 Yet the Administration promulgated regulations expanding the applicability of subsidies to all Exchanges, whether established by states or run by the federal government.

Conventional wisdom in Washington holds that, in the event of a favorable King v. Burwell ruling striking down the Obama Administration’s rule, Congress—or legislatures in the 37 states affected—will rapidly act to create state Exchanges, or allow some mechanism for subsidies to continue to flow. However, doing so will have significant adverse impacts—raising taxes, raising spending, and raising the deficit. Moreover, resuming the flow of subsidies will only further entrench both Obamacare and its harmful effects—on our budget, on our economy, and on our health care system.

Conservatives should reject any “Obamacare-lite” proposals that seek to re-establish, and further entrench, the tax increases and spending hikes under the President’s unpopular health care law.12 Instead, policy-makers should embrace the opportunity potentially presented by the Court’s upcoming ruling in King v. Burwell to advance solutions that solve the health care problem Americans worry about most—rising costs. Policies that address the problem of cost growth—including the innovative solutions put forward by America Next last spring—without resorting to Obamacare’s tax increases, massive spending, and new entitlements stand the best chance of winning the widespread public support Obamacare has consistently lacked.13

The impending Supreme Court arguments and decision in King v. Burwell provide conservatives with both a challenge and an opportunity. The case gives Congress and the states a chance to craft positive solutions on health care—granting relief to the American people from both Obamacare and rising costs—provided that they recognize more taxes, spending, and deficits are not the answer.

Notes

1. Includes 3 Federally-supported, 7 State-Partnership, and 27 Federally-facilitated Exchanges. See Kaiser Family Foundation, “State Health Insurance Marketplace Types, 2015,” http://kff. org/health-reform/state-indicator/state-health-insurancemarketplace-types/.
2. Congressional Budget Office, “Insurance Coverage Provisions of the Affordable Care Act—January 2015 Baseline,” January 26, 2015, http://www.cbo.gov/sites/default/files/cbofiles/ attachments/43900-2015-01-ACAtables.pdf.
3. Ibid., Table B-3.
4. Patient Protection and Affordable Care Act (PPACA), Public Law 111-148, Section 1513.
5. Congressional Budget Office, January 2015 baseline, Table B-1.
6. Section 5000A(e) of the Internal Revenue Code, as created by Section 1501 of PPACA, provides an exemption from the individual mandate for all those for whom self-only insurance coverage exceeds 8 percent of household income, “reduced by the amount of the credit allowable”—i.e., any applicable federal premium subsidies. The statute further provides for an annual adjustment of the threshold percentage, based on the rate at which premium growth exceeds income growth since 2013. In May 2014, the Centers for Medicare and Medicaid Services set the required contribution percentage for calendar year 2015 at 8.05 percent of income. See Centers for Medicare and Medicaid Services, “Patient Protection and Affordable Care Act: Exchange and Insurance Market Standards for 2015 and Beyond,” Federal Register May 27, 2014, http://www.gpo.gov/fdsys/pkg/FR-201405-27/pdf/2014-11657.pdf, pp. 30243-44.
7. In calendar year 2015, 400% of FPL equals $47,080 for a single individual, and $97,000 for a family of four. See federal poverty guidelines available through the Department of Health and Human Services’ Office of Planning and Evaluation, http://aspe. hhs.gov/POVERTY/15poverty.cfm.
8. Congressional Budget Office, “Penalties for Being Uninsured under the Affordable Care Act: 2014 Update,” June 5, 2014, http:// www.cbo.gov/sites/default/files/45397-IndividualMandate.pdf, Table 1.
9. Congressional Budget Office, January 2015 baseline, Table B-1.
10. Ibid.
11. Section 36B(b)(2)(A) of the Internal Revenue Code, as created by PPACA Section 1401(a).
12. Gov. Bobby Jindal, “The GOP Mustn’t Offer ‘Obamacare-Lite,’” Politico February 1, 2015, http://www.politico.com/magazine/ story/2015/02/gop-obamacare-alternative-114820.html#. VOu9RVaprwJ.
13. See America Next’s Freedom and Empowerment Plan, available at http://americanxt.org/wp-content/uploads/2014/04/The-Freedomand-Empowerment-Plan.pdf.