Archive | Insurance Exchanges

McConnell on the Obama Administration’s Decision to Delay the Employer Mandate

In tomorrow’s WSJ, Stanford’s Michael McConnell has an op-ed discussing the constitutional implications of the Obama Administration’s decision to delay enforcement of the PPACA’s employer mandate.

Article II, Section 3, of the Constitution states that the president “shall take Care that the Laws be faithfully executed.” This is a duty, not a discretionary power. While the president does have substantial discretion about how to enforce a law, he has no discretion about whether to do so.

This matter—the limits of executive power—has deep historical roots. During the period of royal absolutism, English monarchs asserted a right to dispense with parliamentary statutes they disliked. King James II’s use of the prerogative was a key grievance that lead to the Glorious Revolution of 1688. The very first provision of the English Bill of Rights of 1689—the most important precursor to the U.S. Constitution—declared that “the pretended power of suspending of laws, or the execution of laws, by regal authority, without consent of parliament, is illegal.” . . .

The Justice Department’s Office of Legal Counsel, which advises the president on legal and constitutional issues, has repeatedly opined that the president may decline to enforce laws he believes are unconstitutional. But these opinions have always insisted that the president has no authority, as one such memo put it in 1990, to “refuse to enforce a statute he opposes for policy reasons.”

As McConnell’s article makes clear, there is a major difference between discretionary enforcement decisions and a wholesale refusal to enforce a given legal provision.  It would be one thing if, say, the Administration announced it was going to focus its resources on pursuing particular types of employers for evading the mandate, or if it issued a guidance identifying the sorts of conduct that would be indicative of a willful (as opposed [...]

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The Implications of Delaying the Employer Mandate

The Obama Administration’s decision to delay enforcement of the PPACA’s employer mandate could have far-reaching implications for PPACA implementation and the politics of health care reform.

First, it’s important to recognize what the Administration’s decision does not do.  Contrary to some suggestions, this decision does not affect the so-called “contraception mandate” that is currently the subject of several dozen suits in federal court.  The contraception mandate is a function of the Preventative Services Mandate contained in a separate portion of the Act.  The penalty for failing to include coverage for all FDA-approved forms of contraception in an employer-provided health plan is provided for in a different portion of the Act and remains in force.  Thus, as the folks at the Becket Fund explain (see also here), the Administration’s announcement should not affect any of the pending suits against the contraception mandate.

Delaying enforcement of the employer mandate will have significant implications, political and practical, as the EPPC’s Yuval Levin notes.

Until yesterday, the administration had basically put on a brave face about the difficulties arising in its implementation of Obamacare. With a few minor exceptions (now especially notable among them the one-year delay of key requirements for the new small-business exchanges), they have pretended everything was fine, and have enabled a chorus of defenders on the left to do the same. Last night’s announcement of a one-year delay in the implementation of the employer mandate is the first serious indication that the administration sees that the wheels are coming off the bus, and is very worried about it. . . .

This would have been a very tough decision to come to for several reasons. Not least of them is that, as I say, it is the first major acknowledgement of a serious problem implementing this law, and

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Public Ignorance about Obamacare Revisited

The recent Kaiser poll on health care linked by co-blogger Jonathan Adler reveals more evidence of public ignorance about Obamacare. Most notably, 45% of respondents say they have heard “nothing” about the health care reform law’s insurance exchanges, and 34% say they have heard “only a little.” This despite the fact that the exchanges are one of the most important and controversial elements of the new law. The refusal of many state governments to set up state exchanges has complicated the implementation of Obamacare and led to ongoing controversy. If most of the public has heard little or nothing about the exchanges, it is not because the information hasn’t been publicized by the media and other sources, but because most people have chosen to ignore it out of rational ignorance. This result is consistent with previous polls showing widespread ignorance about Obamacare. For example, Kaiser’s April tracking poll found that 42% of the public does not even realize that Obamacare is still the law.

The new Kaiser poll also shows that many people react differently to the law when it is described as “Obamacare” then when it is referred to as the “health reform law.” 58 percent of Democrats have a favorable view of the latter, but 73 percent approve of Obamacare. By contrast, Republicans are more likely to disapprove of Obamacare (86 percent) than the health care reform law (76 percent). This too may be an indication of ignorance. Politically aware people surely realize that the law is associated with Obama whether it is labeled as Obamacare or not. Some percentage of the public, however, either does not know that or tends to forget unless reminded. And that percentage may well be higher than the 10-15 percent or so whose opinion of “Obamacare” differs from their [...]

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Another Suit Filed Against IRS Rule on Tax Credits in Federal Exchanges

Last week, several small business owners and individuals filed suit challenging the legality of an IRS rule purporting to authorize tax credits for the purchase of qualifying health insurance policies in federal exchanges. The complaint is here. The suit is being coordinated by the Competitive Enterprise Institute and the plaintiffs are represented by Michael Carvin of Jones Day. Here’s coverage of the suit from BLT and the WSJ.

This suit presses the argument I have made with Michael Cannon in this recently published article in Health Matrix. It raises similar claims to another suit pending in federal district court in Oklahoma. For more on the issue, see these posts. [...]

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Most States Won’t Create Exchanges

Yesterday was the deadline for states to tell the Department of Health and Human Services whether they wanted create their own health insurance exchanges. As the NYT reports, only 17 states have said they intend to create an exchange. Among the reasons states have given for refusing to cooperate is the lack of guidance from HHS and the reality that state exchanges will still have to play the federal government’s tune.

Pennsylvania seriously considered running its own exchange, but Gov. Tom Corbett said on Wednesday that he would not pursue the idea.

“State authority to run a health insurance exchange is illusory,” Mr. Corbett said. “In reality, Pennsylvania would end up shouldering all of the costs by 2015, but have no authority to govern the program.”

In Tennessee, state officials did a huge amount of planning for a state-run exchange. But Gov. Bill Haslam announced this week that he had decided against the idea because the Obama administration had failed to answer numerous operational questions.

Gov. Chris Christie of New Jersey cited similar concerns in vetoing legislation to establish a state-based exchange last week.

“New guidance continues to trickle out of Washington at an erratic pace,” Mr. Christie said.

The federal government faces a daunting challenge in trying to create exchanges in 30 or more states. Among the other problems, the PPACA did not provide HHS with any money to pay for the creation or operation of federal exchanges. Last year, HHS conceded this would require getting “creative.” One step HHS intends to take is imposing a 3.5 percent surcharge on the sale of insurance plans in federally run exchanges, but this still won’t be enough. [...]

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Would It Be “Absurd” For Congress to Withhold Tax Credits In Noncompliant States?

One oft-repeated response in the comments to my latest post reiterating the argument that the PPACA only provides tax credits for the purchase of qualifying health insurance in state-run exchanges is that this would produce an “absurd” results. This would be “absurd,” some claim, because the consequence of state refusal to create their own exchanges — the loss of tax credits and subsidies for the purchase of insurance — would undermine the goals of the Act. Further, some argue, it would be absurd to facilitate state opposition to the Act in this way. Yet it is indisputable that this is not the first time Congress has done this. Indeed, Congress did the precise same thing in other parts of the PPACA.

The most obvious example of Congress using this “absurd” tactic is the Medicaid expansion. Under the PPACA, as written, states that refused to participate in the Medicaid expansion would forfeit federal funding for the expansion as well as all federal support for the pre-existing Medicaid program. So not only did Congress threaten to withhold new benefits in unconsenting states, it also threatened to further undermine the PPACA’s goals by withdrawing existing Medicaid funding. In other words, if a state sought to undermine the PPACA by refusing to cooperate with the Medicaid expansion, this would trigger a sanction that would reduce health care coverage for needy populations — a result directly contrary to the stated goal of the PPACA. The Supreme Court ultimately concluded this deal was unconstitutional, but there is no question of what the statute sought to do.

Congress decided to pursue the PPACA’s goal of expanding coverage by enlisting states in the cause, and it sought to enlist states in the cause by providing states with incentives, including a threat to withhold funding for benefits to needy [...]

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The Illegal IRS Rule on Health Insurance Exchanges – A Reply to Bagenstos

One component of the PPACA (aka Obamacare) provides for the creation of health insurance exchanges in each state in which consumers may purchase health insurance. The PPACA’s supporters anticipated that every state would create its own exchange, and the law provides for tax credits and subsidies for the purchase of qualifying health insurance plans in state-run exchanges. Yet as Michael Cannon and I pointed out the PPACA does not authorize tax credits and subsidies in exchanges run by the federal government. This is a potential problem because at least twenty states are refusing to create their own exchanges and are defaulting to the federal option. In response, the IRS issued a rule to authorize tax credits and subsidies in federal exchanges. The only problem, as Cannon and I explain at length in a forthcoming article in Health Matrix, the IRS rule is illegal. Now the rule is being challenged in court by Oklahoma in a suit legal analyst Stuart Taylor calls “by far the broadest and potentially most damaging of the legal challenges” to PPACA implementation, and more suits are likely.

The IRS defends its rule, but has had difficulty providing much by way of justification beyond vague references to congressional intent. Now comes my friend Samuel Bagenstos, at his Disability Law blog and Balkinization, arguing that Cannon and my arguments are “nonsensical” and “deeply legally flawed.” Bagenstos is a serious scholar, and his arguments are clever, but they do not sustain the case for the IRS rule.

Bagenstos’ central argument is similar one advanced by Tim Jost on the Health Affairs blog (and to which Cannon and I responded here). Essentially he argues that the PPACA makes federal fallback exchanges the legal equivalent of state-run exchanges and therefore any tax credits or subsidies authorized in the [...]

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Georgia Fact-Check Fail

The election may be over, but the work of “fact-checkers” continues. Last week, Politifact-Georgia waded into the debate over whether states should create health insurance exchanges with a fact check of my occasional co-author Michael Cannon of the Cato Institute. Specifically, Politifact evaluated the claim, made in this article, that:

operating an Obamacare exchange would be illegal in 14 states. Alabama, Arizona, Georgia, Idaho, Indiana, Kansas, Louisiana, Missouri, Montana, Ohio, Oklahoma, Tennessee, Utah, and Virginia have enacted either statutes or constitutional amendments (or both) forbidding state employees to participate in an essential exchange function: implementing Obamacare’s individual and employer mandates.

Politifact rated this claim as “false” because “federal law supersedes state law.” As the headline reiterated: “Experts say federal law trumps state law on ‘Obamacare exchange’ claim.” It’s certainly true that “federal law supersedes state law,” but it’s also irrelevant to the claim that state law precludes employees in these states from creating exchanges. Under the Supremacy Clause, validly enacted federal laws trump inconsistent state laws, but federal law cannot compel state officials to implement federal law. As the Supreme Court has made clear in numerous cases, and reiterated in NFIB v. Sebelius, the federal government may not commandeer state officials to implement a federal program. Therefore, federal law does not – indeed, cannot – compel Georgia (or any other state) to create a health insurance exchange and does not preempt a state law that prohibits state officials from doing so. Moreover, when asked, the one legal expert Politifact consulted told me she did not claim otherwise. More importantly, Cannon never claimed the federal government could not create an exchange in Georgia under federal law. Nonetheless, Politifact rated Cannon’s claim as “false.”

When challenged on the accuracy of the “fact check,” the author of the item, Eric Stirgus, [...]

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Oklahoma Challenges IRS Rule on Tax Credits in Federal Exchanges

Oklahoma Attorney General E. Scott Pruitt today filed an amended complaint in the state’s lawsuit against the Patient Protection and Affordable Care Act that, among other things, challenges the legality of an IRS rule that would authorize tax credits for the purchase of health insurance in federally run exchanges, and thereby expose Oklahoma employers to penalties should they fail to comply with the law’s employer mandate. Here’s AG Pruitt’s press release and an early news report. For background on the issues in this suit, see here.

In related news, Hobby Lobby filed suit against the so-called contraception mandate last week. With this filing, there are now over two-dozen suits pending against the requirement that employers include coverage for government-approved methods of contraception in health insurance plans offered to their employees. Whatever the outcome of the direct challenges to this policy, should Oklahoma’s claim that the IRS rule is illegal prevail, the contraception mandate would be unenforceable against employers in states without state-run exchanges. For this reason, I would not be surprised if some of the plaintiffs challenging the contraception mandate opt to challenge the IRS rule as well.

UPDATE: Oklahoma’s amended complaint is here. [...]

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Could Individuals Have Standing to Challenge IRS Rule Creating Tax Credits in Federal Exchanges?

The PPACA provides for tax credits and subsidies to help eligible taxpayers purchase health insurance in state-run health insurance exchanges. Although the text of the statute only provides for the issuance of credits in exchanges “established by a state,” the IRS has issued a regulation providing for the issuance of tax credits and subsidies in federally run exchanges as well. (More here and here.) This is significant because a substantial number of states are refusing to create their own exchanges, and the question could well end up in court.

As a normal matter, individuals lack standing to challenge the legality of favorable tax treatment given to someone else. In this case, however, employers in states with federal exchanges could sue to challenge the IRS rule because the issuance of tax credits will trigger penalties on employers under the so-called employer mandate. What about individuals? It turns out, some individuals in states that do not create their own exchanges may have standing to sue as well, as Michael Cannon and I explain in the revised version of our forthcoming paper in Health Matrix.

The reason some individuals could have standing to challenge the IRS rule is that the issuance of unauthorized tax credits in federal exchanges would expose them to tax penalties under the individual mandate. This is because liability for the individual mandate tax penalty is based upon the cost an individual has to pay for qualifying health insurance. If an individual’s “required contribution” exceeds 8 percent of household income, they are exempt from the penalty. By providing a tax credit and subsidies, the IRS rule reduces the cost of purchasing a qualifying health insurance plan, thereby exposing some individuals who do not wish to purchase health insurance to the tax penalty. Therefore, an individual who lives [...]

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House Hearing to Consider Illegal IRS Rule Implementing Health Care Reform

Today the House Committee on Oversight and Government Reform is holding a hearing on the Internal Revenue Service’s role in “Enforcing ObamaCare’s New Rules and Taxes.” Among the subjects of the hearing is a recent IRS rule authorizing tax credits and subsidies for the purchase of qualifying health insurance plans in federally-run exchanges. Although the plain text of the PPACA only authorizes tax credits in state-run exchanges, the IRS promulgated this rule to ensure the credits (and associated subsidies) are available nationwide. This rule will affect quite a few states because somewhere between 15 and 30 states (if not more) will fail to create exchanges by 2014. The rule is also illegal.

I have co-authored testimony for the hearing with Michael Cannon of the Cato Institute arguing that the IRS rule is not authorized by the PPACA. The testimony is largely based on our forthcoming article in Health Matrix. As we explain in the article, the rule is not authorized by the plain text of the PPACA, nor can it be justified by resort to the statute’s legislative history or congressional intent.

The most prominent critic of our position is Professor Tim Jost of Washington & Lee, who will also be testifying at the hearing. He criticized our position on the Health Affairs blog. Wednesday, Health Affairs posted our response. As we note, Jost has moderated and modified his position since he first critiqued our claim. More importantly, Jost fails to identify any statutory language or evidence from the legislative history that contradicts the plain text of the statute. Nor, for that matter, has the IRS. We’ll see if they have any more evidence in support of their position at the hearing.

The heart of Jost’s claim is that the PPACA’s supporters would have wanted tax credits to [...]

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If Health Reform Law Survives, Litigation Will Continue

Unless the Supreme Court decides to eliminate the Patient Protection and Affordable Care Act in its entirety, Florida v. Sebelius is not the end of health care reform litigation, but only the beginning. Lawsuits are already pending challenging everything from the contraception mandate to the black lung benefits provisions to the structure of the Independent Payment Advisory Board, as Reuters reported last week. More will follow.

In tomorrow’s USA Today, Cato’s Michael Cannon and I discuss another potential lawsuit that will be filed if the health care law survives: A challenge to the IRS rule providing tax credits and premium assistance for qualifiying health insurance plans sold on federally run exchanges. As I noted here and here, the text of the PPACA only authorizes tax credits and premium assistance for insurance plans purchased in state-run exchanges. If a state refuses to create an exchange, the federal government is supposed to create a “fallback” exchange, but the law does not provide for tax credits and premium assistance for insurance plans purchased on these “fallback” exchanges. The IRS rule tries to fix this by rewriting the statute, without any textual warrant. I discussed the rule in this Cato video.

The IRS rule may be illegal, but that doesn’t mean there will be a lawsuit. As a general rule, taxpayers lack standing to challenge the misuse of federal funds or preferential tax treatment given to others. Were tax credits and premium assistance the only consequence of the IRS rule, there would be no viable litigation. As the law is written, however, the IRS rule triggers other consequences that will provide a basis to challenge the rule. The PPACA contains an “employer mandate” that requires larger employers to provide minimum health coverage to their employees. Those who fail to do so [...]

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Another ObamaCare Glitch

As I discussed in this post, the IRS is proposing to give tax credits as premium assistance more broadly than is authorized by the text of the Patient Protection and Affordable Care Act (PPACA).  Specifically, the law only authorizes such premium assistance for health insurance purchased in state health care exchanges, but the IRS is proposing to provide such assistance for insurance plans purchased on federally run exchanges as well.  In today’s WSJ, the Cato Institute’s Michael Cannon and I argue the IRS lacks the authority to make this fix and expand on the implications of this glitch in the law.  Not only will it hamper the law’s ability to hold down health insurance costs borne by individuals, it could also frustrate enforcement of the employer mandate.

What happens if the IRS goes ahead with its proposed fix?  Would anyone have standing to challenge this violation of the law?  Normally the answer would be no, as no taxpayer would have standing to challenge an IRS decision to give preferential tax treatment to someone else.  But in this case standing is likely because, as discussed here, premium assistance is tied to the enforcement of the employer mandate in a way that would give a penalized employer standing to sue.  So if the IRA goes ahead, this is another PPACA issue that will end up in court. [...]

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The IRS Wants to Give Tax Credits for Health Insurance Purchases Beyond Those Provided for in the ACA

The Internal Revenue Service is beginning to promulgate regulations to implement the tax-related provisions of the Affordable Care Act (aka “ObamaCare”). A proposed rule issued last month provides that eligible taxpayers may receive tax credits for the purchase of qualifying health insurance plans established by states under Section 1311 or by the federal government under Section 1321. The only problem is that this is not consistent with the actual text of the statute passed by Congress.

ACA Section 1401 provides that eligible taxpayers may receive income tax credits for purchase of insurance “through an Exchange established by the State under Section 1311.” Section 1311 calls upon states to establish health insurance exchanges. It does not provide for the federal government to create health care exchanges. Rather, a separate provision of the act, Section 1321, provides that if a state does not “elect” to create an exchange that meets federal requirements, the federal government shall then “establish and operate” an exchange. Thus, under a plain reading of the text, the ACA only provides for tax credits for state-run exchanges, and if states fail to create exchanges, there are no tax credits for insurance bought on a federally run exchange.

This is potentially significant for several reasons. The individual mandate requires all Americans to purchase health insurance. Even if the mandate is successful at reducing adverse selection, health insurance premiums are still expected to rise due to other provisions in the law.   Higher premiums could make it difficult for many Americans to comply with the mandate. For this reason, Congress not only called upon states to create exchanges, it also authorized tax credits to offset the cost of health insurance premiums for those with incomes between 100 and 400 percent of the poverty level.   But if these tax credits are only available [...]

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