As we approach oral argument this week at the Supreme Court in the King v. Burwell case, critics of the latest legal challenge to an Affordable Care Act provision are predicting a disaster of biblical proportions if the Court overturns an IRS rule and declares as illegal the current insurance subsidies for coverage in health exchanges established by the federal government.
This endless loop of major media reporting seems to be taking its cues from the original Ghostbusters movie script. “Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! The dead rising from the grave! Human sacrifice! Dogs and cats, living together! Mass hysteria!” But only the “mass hysteria” part may be accurate for some of those news and commentary outlets.
Let’s first sort out the predicable effects of a victory for four individuals in Virginia who are seeking relief from the ACA’s individual mandate to purchase government-approved insurance that would otherwise be unaffordable for them, but for the tax subsidies they claim were not authorized by the Congress that passed the health law in 2010.
If the Supreme Court agrees that the statute’s language limits those subsidies only to “an Exchange established by the State under [section] 1311” of the ACA, the federal tax credits will no longer be available in as many as 37 states that have failed to establish exchanges on their own for this year. Without exchange-based tax credits, the ACA’s employer mandate penalties in those states would no longer apply and the mandate could no longer be enforced. A much larger share of the residents of those states also would become exempt from the law’s individual mandate to purchase ACA-qualified coverage. For related reasons, a good portion of the ACA’s other federally required insurance rules would be weakened, if not fully negated.
This series of policy reversals is presumed to immediately produce a devastating cascade of premium spikes, policy cancellations, insurer exits, unpaid hospital bills, and millions of newly uninsured Americans. However, the formulaic, knee-jerk forecast of a death spiral throughout the individual and small-group insurance markets is exaggerated for political effect and built on linear projections of static and unrealistic assumptions.
First, markets soon would begin to adjust and adapt. Other sources of off-exchange coverage would develop that no longer needed to comply with many ACA rules (for example, catastrophic coverage, pre-ACA grandfathered plans, re-priced insurance premiums, or reconfigured benefits packages)
Second, some automatic time lags after the Court’s ruling would delay immediate effects. At a minimum, the effect of a decision for the petitioners won’t go into effect for at least 25 days. Current federal regulations would allow individuals previously covered by subsidized exchange plans to maintain coverage for at least another 30, if not 90 days, after failing to pay their next monthly premium payment. Some state laws provide similar or additional protection. Insurers wishing to quickly exit the non-state exchanges cannot do so immediately under their current contracts. At least some states are likely to allow emergency reconsideration of insurers’ premium rates for the rest of this year. Previous subsidies paid out for coverage in federal exchanges will not be clawed back from those who relied on assurances from the Obama administration that they were legal (and permanent).
Third, to regain some perspective, recall that the ACA’s exchange coverage provisions have only been implemented since January 2014 and they apply to roughly 11 million enrolled Americans, at best, thus far. Current coverage in state-established exchanges will continue to receive federal subsidies, even after any decision overturning the IRS rule. At least a half-dozen or more other states soon would find a way, assisted by the Obama administration, to requalify as state exchanges after all. Moreover, our country somehow managed to survive hundreds of years without the ACA’s insurance provisions. Even the Obama administration and its congressional allies decided in March 2010 that millions of uninsured Americans could wait almost four more years (until January 2014) before only some of them apparently needed to gain access to subsidized, exchange-based coverage.
Fourth, and most important, the death-spiral prediction breezes right past the real-world political considerations that will short-circuit it. Officeholders in Congress and the states simply cannot and will not allow it to happen. No matter what else, they want to keep their jobs. The purported negative consequences of millions of Americans losing their current exchange-based coverage fails to account for a predictable replacement of the old subsidies with new ones, albeit in altered form with a different set of rules governing future coverage in previous federal exchange states.
For several months, a pair of Republican working groups in the Senate and House have been developing several alternative plans for protecting current exchange enrollees who might otherwise lose their subsidized coverage in the middle of an ACA plan year, in the event that the Supreme Court properly strikes down the illegal IRS rule that tried to authorize the tax credits that help pay for it. However, succeeding in negotiating both short-term transition rules for the rest of 2015 and a significant shift next year toward more consumer-centered and less government-mandated health care options will require Hill Republicans to avoid either of two extreme impulses, so that they do not snatch defeat from the jaws of victory ahead.
One short-sighted temptation is to imagine that a victory against the IRS rule in the King case will mean the complete end of Obamacare and that nothing else remains to be done in national health policy thereafter. Even if the loudest Capitol Hill munchkins want to hum, “Ding dong, the witch is dead,” they will need a bigger house and a stronger tornado to get the job done. The votes on Capitol Hill to repeal the ACA still are not there – even without the need to overcome a swift presidential veto.
In the meantime, the more pernicious temptation is to look for easier escape routes,if the Supreme Court sides with the King petitioners. This type of political thinking complains that it’s just too hard to come up with better policy alternatives to Obamacare, the President and his allies might say mean things about Republicans, and maybe it’s better to cut one’s losses quickly and start talking about the “next” election ahead instead.
One recent sign of the tendency to try to sound like a lion but think like a lamb popped up last week as an op ed in the Wall Street Journal. Freshman senator Ben Sasse (R-NE) jumped ahead in line to propose his own “A First Step on the Way Out of Obamacare.” The need to provide targeted, transitional protection to enrollees left stranded in federal exchange coverage without any more illegal subsidies is real. But the Sasse plan’s reliance on a COBRA law model falls short in several crucial respects.
COBRA operates within an employer coverage context, rather than for the individual insurance market. The only recent model of taxpayer-subsidized COBRA coverage involved a temporary 65 percent refundable tax credit. It was included in the Obama administration’s 2009 stimulus package and applied only to people who were involuntarily terminated between September 1, 2008 and December 31, 2009. The COBRA subsidies could only last a maximum of nine months.
The Sasse plan appears to promise current federal exchange enrollees that they can keep their ACA insurance, for another 18 months, with a substantial taxpayer subsidy as well. The 18-month extension is the hidden giveaway of a “no mas” concession to the Obama White House. It surrenders in advance any possible negotiating leverage, while punting the larger issue until the next presidential campaign and early 2017, at which point ACA implementation will have proceeded for another two years from now. Reform is always another day, or another election promise, away. The Sasse plan described last week fails to insist on any necessary preconditions for an extension of subsidies for coverage quite similar, if not identical, to what other Republican officeholders are purportedly criticizing!
The essential problem here is that it’s hard to strike a credible political posture, without a stiffer backbone.
But other congressional leaders do have a better way to go in the upcoming negotiations with the White House, after a King ruling in their favor. They should focus on what matters most, and insist on it. Achieving a post-King compromise with President Obama must involve more than tweaking the location, pipelines, and speed for the next delivery of taxpayer subsidies to previous enrollees in federal exchange coverage.
The key opening demands by Hill Republicans must involve an end to the employer mandate and the individual mandate. That’s essentially what a victory for the petitioners in King would already have delivered. Why throw that away? Ideally, a much greater loosening of the benefits requirements for future subsidized coverage in states without their own ACA exchanges (if not an “any willing seller of any state-approved insurance product” standard) would be achieved as well. Hill Republicans also should insist on shutting the door completely on any further taxpayer subsidies for risk protection subsidies to ACA-exchange insurers (via risk corridor payments and reinsurance taxes). Any initial transitional subsidies for current enrollees in federal exchange coverage should be limited to just the remaining months of 2015, with separate new rules for subsidized coverage beginning on January 1, 2016 for the next plan year.
What would a reasonable compromise look like, after a few weeks of posturing, buck-passing, and finger pointing? (1) Limiting these new rules to just those states that have not established ACA-compliant exchanges. (2) Holding harmless for the rest of 2015 current federal exchange enrollees who were taken hostage with illegal taxpayer subsidies, but not adding new victims.
Whether the new pathway for subsidized coverage flows more directly through state governments (such as through a capped appropriation or block grant mechanism based on the levels of exchange subsidies for a given state in the first half of 2015) or a modified and less complicated federal tax credit mechanism is less important. If the two key, unpopular, and unwise mandates of Obamacare are ended going forward in about three-dozen states, the road to replace, revise, or repeal will be in sight, along with a brighter future for more affordable, accessible, and sustainable health care.
In the interim, the insurance market sky will not fall. Practicing politicians will not get their first, or maybe even their second, choices, but they will agree to a workable compromise. Not because many of them want to, but because they will have to do so.
Tom Miller is a resident fellow at the American Enterprise Institute.
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