After Halbig: What’s next for Obamacare?

After more than 40 attempts to pass legislation calling for repeal or significant changes to the health law, opponents of the Affordable Care Act have moved their focus from the House floor to the courthouse. Currently at least four lawsuits are working their way through state and district court — and one case awaits a nod from the Supreme Court — that would make it illegal for the federal government to provide premium subsidies to qualified consumers who buy Obamacare plans in 36 states that failed to set up their own exchanges. Depriving lower-and middle-income Americans of affordable healthcare is bad enough. But these lawsuits are just the latest weapon in the long-term quest to overturn the ACA — and hobble the Obama presidency — by any means necessary.

In fact, it is a strategy grounded in disruptive economics. As Jonathan Gruber, an MIT economist and chief architect of Massachusetts’ health reform law explains it, the Affordable Care Act is designed as a three-legged stool: The first “leg” is new rules that prevent insurers from hiking premiums or denying coverage for people with pre-existing conditions. The second “leg” is the individual mandate that requires all Americans to have health insurance. The third “leg” of the health law is the federal subsidies that make this insurance affordable to lower and middle-income people. Knock out one leg and the whole law becomes economically unfeasible.

Where are the potential weaknesses? The first leg of the stool is solid: There is bipartisan support for ending discriminatory practices in the insurance industry. The second leg is strengthened by the Supreme Court decision that found the individual mandate to be constitutional and enforceable. But the third leg — federal subsidies to help lower-income families and individuals pay for health coverage — is considered wobbly enough by conservatives to collapse with the right legal pressure. Their focus now is on the wording of a section of the Affordable Care Act that authorizes the federal subsidies. The law allows that tax subsidies may be available to qualified citizens who enroll in insurance plans “through an Exchange established by the State.”

This phrase, buried deep within the 2000 pages of the health law is the basis for at least four lawsuits charging that the ACA did not intend for premium subsidies to be legal in the 36 states relying on the federal government to run their exchanges. Although conservative groups like the Competitive Enterprise Institute are bankrolling these suits, plaintiffs include employers and individuals who claim that they are being “forced” to buy insurance even though their states failed to establish exchanges. On July 22, a three-judge panel from the District of Columbia’s appeals court ruled 2-1 in one such case — Halbig v. Burwell — that federal subsidies are illegal in the 36 states that rely on the federal exchange. “A federal exchange is not an ‘exchange established by the state,’” said Judge Thomas Griffith  who added, “We reach this conclusion, frankly, with reluctance,” considering the “significant consequences both for millions of individuals receiving tax credits and for health insurance markets more broadly.”

This reluctance is well founded. If the ruling stands, some 4.6 million people in 34 states would lose premium subsidies.  The Kaiser Family Foundation estimates that if you include those who are eligible for subsidies in federal marketplace states but have not yet signed up, the ruling could potentially affect a total of 9.5 million uninsured individuals. Almost 90% of Americans who purchased insurance through the exchanges have received subsidies. Many of them — including a significant number of healthy, young people — would no longer be able to afford insurance. Since many of them live in the 24 states that also refused to expand Medicaid benefits, they would be exempt from the individual mandate and likely join the ranks of the uninsured. The Halbig decision would also invalidate the employer mandate in states using the federal marketplace, removing the requirement that employers pay penalties if they fail to provide affordable health insurance for their workers. According to Adrianna McIntyre at Vox,  “Halbig v. Burwell is arguably the Affordable Care Act’s greatest existential threat since the Supreme Court case decided in 2012.”

That threat is the tangible goal for conservatives like the Cato Institute’s Michael Cannon who see the Halbig decision as a victory for the majority of taxpayers. Cannon calls the federal subsidies “illegal,” writing in Forbes, “a victory for the Halbig plaintiffs would not increase anyone’s premiums. What it would do is prevent the IRS from shifting the burden of those premiums from enrollees to taxpayers. Premiums for federal-Exchange enrollees would not rise, but those enrollees would face the full cost of their ‘ObamaCare’ plans.”

If, in fact, enrollees did have to cover the “full cost of their ‘ObamaCare’ plans,” it’s easy to imagine a two-tier health care system where you either have to be wealthy or have good employer coverage to access what most of us consider essential benefits.

Fortunately, the federal subsidy issue is far from settled. On July 22 another appeals court in Virginia voted 3-0 to reject a second subsidy challenge, ruling in King v. Burwell that Congress did intend to offer subsidies nationwide regardless of whether consumers bought insurance on a state or federal exchange. Judge Roger Gregory, of the Virginia court, wrote that although the wording of the law was “ambiguous and subject to multiple interpretations,” the Congressional sponsors clearly intended that the ACA make affordable coverage accessible to all Americans. If the subsidies were not available on the federal exchanges, the “economic framework supporting the Act would crumble,” added Gregory, and millions of Americans would be uninsured.

What happens next? The Obama administration will likely ask all 11 judges on the D.C. Circuit Court to rehear the Halbig case — a so-called “en banc” review that could result in a ruling that validates federal subsidies in all states. Meanwhile, lawyers for the plaintiffs in the King v. Burwell case have already asked the Supreme Court to review their case in the current term, citing the “profound consequences” of the D.C. Circuit Court’s ruling:

If the ACA means what it says, as the D.C. Circuit held, the consequences are profound: It means millions of people are ineligible for subsidies and exempt from the ACA’s individual mandate penalty. It means hundreds of thousands of employers are free of the Act’s employer mandate. It means a fundamental change in the health insurance market in two-thirds of the country. And it means that the IRS is illegally spending billions of taxpayer dollars every month without congressional authority.

Besides these two high-profile cases, there are two other suits wending their way through the legal systems of Indiana and Oklahoma that could also end up in appellate courts. It is fair to say that the federal subsidies issue is having a moment — despite the fact that this was a non-issue throughout myriad Congressional hearings, years of policy debate and reams of analysis by pundits and reporters scouring the ACA for potential legislative pitfalls. To succeed, conservatives ultimately have to prove that the law’s creators intended to deny premium subsidies to people who live in states that rely on the federal exchange. As Brian Beutler writes in the New Republic, “Trying to take health insurance away from five million people on an admitted technicality doesn’t wear well. It wears much better if you pretend that’s what Obamacare’s creators wanted.”

If that deceit doesn’t fly, conservatives intent on dismantling the ACA can always fall back on an even more maddening Plan B; suing the president for “overstepping his authority” in his handling of the employer mandate and subverting the health law that way.

Naomi Freundlich is a journalist, policy expert and health advocate who blogs at Reforming Health.

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  • QQQ

    The words “through an Exchange established by the State” were
    intentional. While the Affordable Care Act included a provision for
    setting up a federal healthcare exchange, the Democrats wanted the
    states to run their own. Thus, they specified that only state exchanges
    would be entitled to issue subsidies; that way, reliance on a federal
    exchange would be discouraged.

    The federal exchange was only included to cover the extremely unlikely
    possibility that a state would decline to establish its own exchange.
    The feds figured that since states would be penalized for failing to
    establish exchanges, it was almost inconceivable that the federal
    exchange would be needed. However, that thinking turned out to be
    erroneous, when the Supreme Court ruled that it was unconstitutional for
    the federal government to penalize states for opting to rely upon the
    federal exchange.

    • rightisright5116

      When did the Court rule that it was unconstitutional for
      the federal government to penalize states for opting to rely upon the federal exchange?

  • QQQ

    “MIT economist and chief architect of Massachusetts’ health reform law
    explains it, the Affordable Care Act is designed as a three-legged
    stool: The first “leg” is new rules that prevent insurers from hiking
    premiums or denying coverage for people with pre-existing conditions.
    The second “leg” is the individual mandate that requires all Americans
    to have health insurance. The third “leg” of the health law is the
    federal subsidies that make this insurance affordable to lower and
    middle-income people. Knock out one leg and the whole law becomes
    economically unfeasible.”
    As the great African-American economist Thomas Sowell wisely said: “To
    the economically illiterate, if a company makes a million dollars in
    profit this means their products cost a million dollars more than they
    would have without profits. It never occurs to such people that these
    products might cost several million dollars more to produce if they were
    produced by companies operating without the incentives to be efficient
    created by the prospect of profits.”

    In other words, attempts big daddy government to rid health care of profits will
    only serve to make it less efficient and more costly in the long run

  • doc99

    … Nonetheless, many ObamaCare supporters agree with Gruber that the passage in question was, as others have put it, a mere “drafting error”–that Congress could not possibly have meant to exclude the federal exchange from the subsidy program.

    Many, but not all. One who disagrees is Jonathan Gruber, who not only is a supporter of ObamaCare but was one of the law’s architects. In a January 2012 speech, a video of which Ryan Radia of the Competitive Enterprise Institute posted yesterday on CEI’s website (with credit for the tip to Rich Weinstein), Gruber explained the rationale:

    What’s important to remember politically about this is if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits–but your citizens still pay the taxes that support this bill. So you’re essentially saying [to] your citizens you’re going to pay all the taxes to help all the other states in the country. I hope that that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges. But, you know, once again the politics can get ugly around this.

    It may seem hard to believe that there were two guys named Jonathan Gruber,

    But hey – what’s a speak-o among friends?

    • Naomi Freundlich

      Jonathan Gruber did make an “off-the-cuff” statement during a Q&A session after a lecture where he suggests that citizens in states that fail to set up exchanges will not get tax credits. His response to the New Republic when questioned about that remark?

      “It was just a mistake. People make mistakes. Congress made a mistake drafting the law and I made a mistake talking about it.”

      At the time Gruber made those remarks there were serious questions about whether the federal government would be able to get its exchange running in 36 states by 2014. He says:

      “I might have been thinking that if the federal backstop wasn’t ready by 2014, and states hadn’t set up their own exchange, there was a risk that citizens couldn’t get the tax credits right away.”

      “But there was never any intention to literally withhold money, to withhold tax credits, from the states that didn’t take that step. That’s clear in the intent of the law and if you talk to anybody who worked on the law. My subsequent statement was just a speak-o—you know, like a typo.”

      Finally, Gruber adds:

      “There are few people who worked as closely with Obama administration and Congress as I did, and at no point was it ever even implied that there’d be differential tax credits based on whether the states set up their own exchange. And that was the basis of all the modeling I did, and that was the basis of any sensible analysis of this law that’s been done by any expert, left and right.”

      To recap; from 2009-2012 no member of Congress, no architect of the ACA, no critic of the ACA, no journalist or health policy expert ever raised the issue of tax credit availability in states that fail to set up their own exchanges. Jonathan Gruber–long a supporter of the Mass. and federal versions of health reform–makes an “off-the-cuff” statement in a Q&A session and suddenly a key provision of the ACA is “illegal”? Grasping for straws anyone?

      • tom

        Sorry. The language not ambiguous.
        It’s not about what you meant, but what you drafted and passed.
        Courts can’t redraft unambiguous provisions. Chief Justce Roberts, if he gets the case and is consistent, would uphold that view. When he voted for Obamacare as a tax he also said SCOTUS is not the venue to resolve every political disagreement. If you want it fixed, go back to Congress.
        For a court to rule otherwise is to sanction lawlessness.

  • 1SB

    One additional precaution. Drug stores will change the generic they use if they get a better price on another further confusing people because the medication looks different than the previous generic they used. Pharmacies do not ask the patient if it is okay to do that, they just do it.

  • Dorothygreen

    We need another leg to the stool to have a health care system. 3 legs doesn’t do it.

    I am looking at a 100 years old piano stool with 4 legs, a sturdy center piece to which the 4 legs are attached. It gives the stool more support.

    A 4th leg would transform the ACA into a health care system. This leg would be the negotiation leg. All players in health care – hospitals, physicians, labs, pharma, DME have to negotiate with the Federal government on prices for basic services – this includes insurance companies negotiating for premiums on basic services. Then, the mandate leg becomes more affordable. The subsidies leg would only be to subsidize health insurance premiums and independent of the exchanges (bye- bye Medicaid). The insurance leg would have a framework of negotiated prices to work with doctors and hospitals at the state level, be able to sell for-profit supplemental insurance (for profit outlawed for basic services) and do all the administrative details, thus reducing the role of the government. There would be no need for an employer mandate – it would be an exchange for all.

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