Tuesday, July 22, 2014

DC Circuit Guts Obamacare in Halbig v. Burwell

Today, the D.C. Circuit ripped out the heart of the Affordable Care Act, better known as Obamacare.  In Halbig v. Burwell, the federal appellate court ruled that ACA does not authorize subsidy payments for health insurance purchased in states with a federal exchange.  In other words, if you live in a state using the federal exchange you have to pay the full price for your health insurance.  This is a big deal because 36 of the 50 states do not have their own exchange and therefore their citizens will not be eligible for help with their premium payments, assuming the ruling stands up on appeal.  It's a complex case and I'll break it down for you here.

The Result
Let's start with the result and then work backwards to how the court reached its conclusion.  Obamacare sets up a system of online exchanges where people can buy health insurance.  Depending on your income level, you can get a subsidy (government assistance) to help pay for your insurance.

The court found that ACA distinguishes between states that set up their own exchanges and those states that rely on the federal exchange.  So here's the impact of the ruling:

1) If you live in a state with its own exchange, in dark blue on this map from Freedom Works, the ruling has no impact.  Obamacare clearly allows subsidies for insurance in these states.

2) If you live in a red state, your state did not set up its own exchange and therefore you are not eligible for a subsidy.

3) If you live in a light blue state like Michigan, where I live, it's not clear what the impact is.  These hybrid exchanges are partnerships between the state and federal government.  They are not provided for in the statute, so it would seem the logic of the ruling would be that subsidies should not be allowed there either.  However, a court will have to sort this out, maybe even state by state.

I believe the Freedom Works map is up to date, but you should check your own state's health exchange website to be sure which kind of state you live in.

If you are receiving a subsidy for your health insurance and you live in an affected state, there's no need to panic yet.  The Obama administration has announced they will continue to pay the subsidies while the case proceeds:

“This ruling does not have any practical impact on their ability to continue to receive tax credits right now,” Press Secretary Josh Earnest said of people who could be affected by the ruling, calling it something that should only be of interest to “legal theorists.”

Of course, note the use of the phrase "right now."  And I guess everyone asked to pay back their subsidies, if the case stands up and the court orders repayment, will become a highly interested "legal theorist."

So how did we get here?

The Problem
The ACA says that subsidies are available through an "exchange established by the State."  The legal question is whether this language excludes subsidies to people who buy insurance through the federal exchange.

The IRS, to avoid the problem, decided to interpret the language so as to authorize payments to anyone who purchases health insurance on any kind of exchange anywhere.  Did IRS go too far?

The court accepted the argument that this language tied the subsidies to the state exchanges to create a carrot to reward states that set up their own exchanges and penalize those that don't.  The court also leaves open the possibility that Congress just assumed all the states would so love this new law that they would all go along without the widespread resistance that happened in reality.

Generally, courts defer to administrative agencies like the IRS when they make these kind of interpretations.  The principle goes back to a case called Chevron and is deeply imbedded in US law.  The basic idea is that for the modern administrative state to function, it should be given broad authority to do so without undue court interference.  Only if the court is stuck with a clear statute is it going to overrule a reasonable interpretation by the agency.  In this case, the court thought the statute too clear to give IRS so much power to rewrite the law.

Why it Matters
One of the problems in reining in administrative agencies is that there is usually no one who can sue.  The court limits who can sue under a doctrine called standing.  A lawless act is not enough, you need someone who can say that lawless act harms me directly and the court can and should do something to fix it.  So who did the "free money" hurt?

There were two kinds of plaintiffs in this case:

1) Individual mandate plaintiffs.  The obligation to purchase insurance under Obamacare disappears for people who make too little money.  However, by handing out the subsidies, the IRS makes people who would otherwise make too little to be penalized subject to the penalty.  The "free money" therefore harms some low income people who choose not to buy insurance by making them eligible for the subsidies but also subject to penalties.  It seems a bit backwards, but that is how the court found standing.

2) Employer mandate plaintiffs.  The other group of plaintiffs potentially impacts a lot more people.  Generally, Obamacare requires large employers to purchase government approved insurance for their full-time employees.  If an employee is entitled to an offer of insurance and does not get one, then the employer faces steep penalties if the employee (1) goes to an exchange AND (2) purchases a subsidized policy.  The employer mandate penalty only occurs if the employee gets a subsidy.

The employers are therefore saying, hey, your "free money" harms me because it means I get penalized.  So stop giving out unauthorized free money.

Most of the time, the government handing out unauthorized money would not harm anyone directly as required by the standing rules.  The government has a real problem here because the potentially improper subsidies harm real people.

Where to Go from Here
This case screams for an emergency appeal to the Supreme Court.  It affects millions of people in one of their most basic needs--access to the healthcare system.  If the case continues to plod along throughout the lower courts, it will not be clear whether millions of people must pay back billions of dollars.  States will not know the consequences of having an exchange or not.  And employers will not know whether the employer mandate applies to them.

Here are the options, as I see them today:

1) The government could continue to pay out subsidies and hope for the best.  I think this is most likely what they will do.  They will appeal to the Supreme Court as quickly as possible and try to get a favorable ruling.  Professor Tribe of Harvard Law School said he would not be the family farm on the government getting a favorable ruling, but I'm sure he'd agree that you shouldn't bet against it either.

2) Go to Congress and fix the problem.  Can't happen with the current composition of the House and Senate, especially in an election year.  So I wouldn't even bother if I were the government.

3) Comply with the court's order by cutting off subsidies in states relying on the federal exchange.  No one could predict the politics of this move and therefore the government will hesitate to do so.  Would people drop their coverage without the subsidies?  Would they blame the Democrats who wrote the law or the Republicans sympathetic to the lawsuit?  Would people see it as unfair that insurance rates vary so much depending on where people live?  If I were up for reelection this fall, this is a headache I'd rather avoid.

I can tell you one thing about option 3.  It would sure put some pressure on the states without exchanges to set up their own.  They would have to justify to their people why they have to pay more for their insurance and pay taxes for people in other states to have lower rates.

4) Moot the case.  A lawsuit can only go forward if there is something to fight about.  The government could make the case go away and still pay the subsidies if it decides not to enforce the employer and individual mandates in the states without their own exchanges.  The only reason anyone is suffering harm is because the subsidies trigger penalties that would not otherwise be triggered.

It's hard to imagine having the employer mandate disappear in 36 states, but the government has delayed and exempted so many companies that it's not clear the employer mandate will ever go into effect.  I believe it's not crazy to think the administration could decide to drop the employer mandate, which it doesn't wish to enforce anyway, and use the case as an excuse to blame Republicans.

There's one other problem with mooting the case this way.  Employers in states with exchanges would find themselves at a competitive disadvantage, facing a cost employers in other states would not have.  It's not unthinkable that businesses would lobby their state legislatures to get rid of their exchanges so that the mandate would not apply.

5) A grand bargain.  Perhaps the President could persuade Congress to fix the problem with the statute by trading something Republicans really want.  It would have to be something big--approval of the Keystone Pipeline, drilling in ANWAR, or elimination of the employer mandate in Obamacare.  I just don't see this President being able to pull off that kind of deal and it might be impossible in an election year anyway.

So there it is, the mess of the day.  If you got this far, thanks for reading.  As always, feel free to make a comment and I'll try to respond.