The Affordable Care Act is being litigated.
Whatever one believes about these cases, litigants on every side had asked the courts to engage unavoidable large questions about the size, scope and regulatory authority of U.S. government.
Another lawsuit is now being pursued, Halbig v. Sebelius, which also poses another potential threat to the Affordable Care Act. Unlike these other cases, Halbig is not rooted in weighty constitutional or political principles. Simply put, it is a nuisance lawsuit that seizes on a sloppy but obvious drafting error to undermine the obvious intent of the new law.
To be a bit more precise, one section of the Affordable Care Act authorizes federal subsidies for health coverage obtained on an “Exchange established by the State under section 1311. ” This key passage should have been written to include all of the exchanges, including the exchanges established by the federal government in 34 states across the country.
Under the plaintiff’s interpretation, Obamacare would only authorize exchange subsidies to help people purchase insurance within the minority of states that agreed to establish their own state exchanges. Millions of consumers in 34 states that have implemented a federal exchange would therefore be excluded from affordability credits so central to health reform.
As a matter of legislative history, Congress intended these exchange subsidies to be available regardless of the entity administering the exchanges. I followed the legislative and policy debate closely. Everyone on all sides understood the law’s intent perfectly well. To cite one obvious example, Republican and Democratic legislators routinely cite Congressional Budget Office cost estimates which presume that exchange subsidies would be available in all fifty states.
In statehouses across the country, legislators debated whether to establish state exchanges or to instead leave this task to the federal government. Antagonists bitterly disagreed about many aspects of the new law. Maybe someone, in some state, argued that the decision to establish a federal exchange would prevent consumers from receiving these subsidies. If so, I’ve never heard of this person. Had state policymakers or private insurers seriously believed that billions of dollars in exchange subsidies were at risk, few states would have chosen to operate a federal exchange.
The federal premium tax credit issue is now being litigated in four federal courts. Halbig is the furthest along. Judge Paul Friedman of the District of Columbia District Court ruled for the defendants in mid-January, holding that the ACA clearly authorized the federal exchange to issue tax credits. The case is now on appeal to the District of Columbia Court of Appeals, which is expected to rule by the end of March. Another case is pending before Judge James Spencer in Richmond, Virginia, fully briefed and awaiting a decision. Cases brought by the attorneys general of Oklahoma and Indiana are further behind, and unlikely to be decided until later this year.
Although Halbig reflects a frivolous lawsuit that (thus far) has fared poorly in the courts, it’s worth recounting its economic consequences were the plaintiff’s logic to be accepted.
The best place to start is the individual mandate, which stabilizes the risk-pool. It makes possible protections for individuals with preexisting conditions. The mandate is a legal and human impossibility without financial assistance to people who could not otherwise afford coverage. Without subsidies, the vast majority of people who participate in the new exchanges would find health insurance unaffordable. In legal terms, they would not be subject to mandate. In human terms, we cannot require people to buy coverage that they cannot afford.
Put simply, destroying the subsidies destroys the mandate, which in turn destroys the possibility of insurance market reforms. An verdict in favor of Halbig would therefore reduce the private health insurance market to what it was before health reform. The end result would be very costly insurance.
People with serious illness or injury would continue to seek coverage even without the subsidy. Such adverse selection would raise average premiums, driving away even more of the relatively healthy people one requires for a functional health insurance market for individual and small-group coverage. We've actually seen this movie before — in Massachusetts before Romneycare, in New York State before health reform passed.
Under Obamacare, individuals are exempted from the requirement that they purchase coverage if the lowest cost insurance available to them would cost more than 8 percent of their income. When health reform passed, Congress understood that tens of millions of people couldn’t meet this affordability standard without serious financial help. Thus, Congress expanded Medicaid for people with incomes below 138 percent of the federal poverty line. Congress also provided generous subsidies within the new exchanges. Almost everyone participating in the new marketplaces will receive these subsidies. The Congressional Budget Office forecasts that more than four-fifths of exchange participants will be relying upon these tax credits for at least some portion of the premium. As I noted, these analyses were accepted as appropriate by both Democrats and Republicans. If the Halbig plaintiffs’ theory were correct, CBO estimates would have been completely different.
Running the numbers
I asked noted MIT health economist Jon Gruber to fill in further details pertaining to calendar year 2016. (Regular readers know that Gruber is a health law supporter. He has closely advised the Obama administration on health reform.) The Gruber Microsimulation Model (GMSIM) is a respected data source regarding the mechanics of health insurance marketplaces and the overall market for health coverage.
At one level, the results are obvious. Federal exchanges would virtually collapse without the subsidies. The particulars remain striking. This is what Gruber’s model predicts would happen to participants in the new exchanges who are now eligible for subsidies:
- More than 99 percent would be deemed to have unaffordable coverage without the subsidy.
- For the typical subsidized exchange participant, the full cost of an unsubsidized bronze plan would reach 23 percent of income.
- The typical unsubsidized silver premium would double, and would average 28 percent of income.
- If subsidies were withdrawn from federal exchanges, the estimated number of Americans without coverage would increase by 6.5 million.
Would courts really do that?
I trust that no court would be reckless enough to wreak such havoc on such a flimsy basis. Friedman was reassuringly clear in its granting summary judgment to the defendants, saying this:
The Court finds that the plain text of the statute, the statutory structure, and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated Exchanges. ... And that must be “the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.”
Yet these cases move along. You never know what might happen within a judicial system that is, itself, conspicuously polarized on ideological lines.
Legal conservatives frequently lament the harm to the public interest and to private businesses caused by dubious lawsuits pressed by ideologically-motivated litigants who pursue essentially partisan outcomes through the courts when these could not be won through conventional politics. Such lawsuits impose needless expense, regulatory delay and uncertainty, dragging courts into matters best left to Congress and to executive agencies. Hmm …