Filed under: Health Law, Health Policy Community
Professor John Jacobi took part in the Council on State Public Affairs’ “New Jersey State of Health” symposium, covered by NJ BIZ and NJ Spotlight. The symposium brought together the state’s leading health policy experts to discuss and formulate responses to the challenges wrought by the implementation of the ACA.
NJ Spotlight reports that:
The discussion on the future of long-term future of healthcare followed panel discussions on the implementation of the health benefit exchange and Medicaid eligibility expansion, key features of the 2010 Affordable Care Act that are both scheduled to beginning covering more New Jersey residents on January 1, 2014.
Seton Hall health law professor John V. Jacobi noted the challenge involved in informing uninsured residents about the new options. The exchange will be an online marketplace in which uninsured people can buy coverage and learn whether they are eligible for federal subsidies.
NJ Biz notes that:
Seton Hall Law School Professor John V. Jacobi said that between Medicaid expansion and the subsidized health plans to be sold on the exchange, “there will certainly be hundreds of thousands of people covered,” among New Jersey’s nearly 1 million uninsured.
“There are several barriers to getting those people covered, and one is the information deficit,” Jacobi said. “People who are uninsured are typically very busy people who struggle to make their rent and put food on the table, and they are not engaged in the rollout of the ACA. So getting navigators and health educators and information to those people is going to be very important.”
The federal Department of Health and Human Services has allocated $1.5 million to fund navigators in New Jersey, which health care experts have said won’t be adequate.
[Assemblyman Herb Conaway Jr. (D-Delran), chair of the Assembly health committee] said outreach to the public will be crucial. The state Department of Banking and Insurance still has an unspent federal grant of nearly $7.6 million it received to help plan a state-run exchange; the state opted instead for HHS to build the exchange for New Jersey. DOBI is talking to HHS about how that money can be used, and Conaway said it’s key that navigators get that money.
“It’s really going to be those community-based organizations that know how to reach and communicate with (the uninsured) that are going to be so important for reaching the people who need to be in the exchange,” he said. “That certainly would be an appropriate use for that money.”
Jacobi said the uninsured in New Jersey, “are mostly people associated with the workplace. Most are in families with workers, full-time or part-time workers, and dependents of workers,” who either can’t afford to buy insurance at their workplace, or their employer doesn’t offer it.
The Patient Protection and Affordable Care Act (PPACA) has, in large part, overhauled the American health care system— and the national dialogue that has resulted from PPACA’s enactment is seemingly infinite. The focus of this post, however, is one particular topic that has not often been a part of the national dialogue. It addresses PPACA’s expansion of the Employee Retirement Income and Security Act (ERISA) by requiring that external reviews be incorporated into employee benefits plans claim procedures.
First, it is important to understand ERISA’s requirements prior to PPACA’s expansion of the statute. The purpose of ERISA is to protect the rights of individuals participating in employee benefit plans. Among the types of employee benefit plans that ERISA regulates are group health plans. To effectuate its purpose, ERISA mandates that if an employer chooses to establish an employee benefits plan, such a plan will fulfill certain requirements. One requirement is that plan participants who receive an adverse determination of benefits are afforded the opportunity to have such a determination reviewed:
In accordance with regulations of the Secretary, every employee benefit plan shall—
(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and
(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.
ERISA § 503, 29 U.S.C § 1133. Essentially, Section 503 requires that an employee benefits plan make available to plan participants claim procedures that enable a challenge to an adverse benefit determination. Pre-PPACA, the review of adverse benefit determinations was an internal process, without any independent, external review of the determination.
As previously mentioned, the enactment of PPACA expanded upon ERISA’s claim procedures requirement.  PPACA’s addition of external review processes aligns ERISA with the spirit of health care reform, which is to provide access to affordable health care to as many Americans possible. Since only an internal review process of an adverse benefit determination was formerly required for purposes of ERISA, the concern was that many Americans were, and would be, denied essential medical coverage. Under the new requirement, the external review process provides that an independent review organization will make a final determination of the plan participant’s determination upon the exhaustion of the employee benefits plan internal claims process. Thus, the external review process serves as a check on internal review processes and is the final, binding determination regarding health care coverage. But it is important to note that in keeping with PPACA’s goal to cut health care costs, such an external review process may also result in the denial of health care coverage where the independent review organization deems medical treatment unnecessary. In addition, PPACA’s modifications of ERISA do not extend to grandfathered health plans, which are plans instituted on or before March 23, 2010.
 Kennedy, Kathryn J., and Paul T. Schultz, III. Employee Benefits Law: Qualifications and ERISA Requirements. 2nd Ed. New York: LexisNexis, 2012.
 Kennedy, Kathryn J., and Paul T. Schultz, III. Employee Benefits Law: Qualifications and ERISA Requirements. 2nd Ed. New York: LexisNexis, 2012.
 ERISA § 503, 29 U.S.C. § 1133.
TIM JOST INTERVIEWS ANDY KOPPELMAN ABOUT KOPPELMAN’S NEW BOOK, THE TOUGH LUCK CONSTITUTION (Oxford University Press 2013).
Q. (Tim Jost) Your book explains, for the general reader, what was at stake in the health care fight and what the Supreme Court did. Why should the general reader care? All this is old news.
A. (Andy Koppleman) If you’re sitting on a hill, and a large boulder rolls past you, it’s a good idea to look uphill to see if any more boulders are coming. The history matters because it shows that there are real dangers.
Last spring, the Supreme Court came within one vote of taking health insurance away from more than 30 million people. Chief Justice John Roberts declined to join the four judges who wanted to do that, but he embraced all their principles. Those principles are nasty. All five judges think that universal health care would be unconstitutional. All are suspicious of a law that asks the healthy and rich to support medical care for the sick and poor. All of them are still on the Supreme Court. They continue to exercise political power over the rest of us. Americans need to understand what happened.
Q. So what do you tell us that we don’t already know from the news stories?
A. My book explains why Obama decided to include the unpopular provision requiring everyone to have insurance. I also show that the Republicans, who originally proposed that idea, turned against it just because they wanted to deny Obama a victory. Most importantly, I show where they got the idea that the mandate was somehow a violation of an important liberty.
Q. Why did the constitutional case take the form it did?
A. The Republicans’ objection to the Act was a combination of politics and substance. Some of them honestly thought it was bad policy. But you can’t challenge a law in court because you don’t like the policy. You need to make a constitutional objection. The constitutional objection was invented, in sketchy form, just as the bill neared passage and almost instantly became Republican Party orthodoxy. It relied on an extreme libertarian philosophy, which holds that, if you get sick and can’t pay for it, that’s your tough luck. The challengers’ arguments would have struck down the Act even if the alternative was a huge population of uninsured. The dark heart of the case against the ACA is the notion that the law’s trivial burden on individuals was an outrageous invasion of liberty, even when the alternative was a regime in which millions were needlessly denied decent medical care.
Q. What about the legal arguments?
A. These are less complex than many people think. Insurance is part of commerce among the several states. Congress can regulate it. Therefore, Congress can prohibit health insurers from discriminating on the basis of preexisting conditions. Under the Necessary and Proper Clause, it gets to decide what means it may employ to make that regulation effective. I explain how the challengers tried, and failed, to get around this simple argument.
Q. Much of your book deals with the history of these constitutional provisions that formed the basis for the ACA litigation. Why should we care about this history?
There are two reasons. One is that, in interpreting any law, it is helpful to know the reasons why the law was passed. The second is that the framers of the Constitution were very bright people, and their insights are useful in addressing today’s problems.
The Constitution was adopted specifically in order to give Congress power adequate to address the nation’s problems. That is its fundamental and overriding purpose. The health care issue is one that the states had tried and failed to address: only Massachusetts did it, and its circumstances were very unusual. A situation in which neither the states nor the federal government could solve the country’s problems was what we had under the Articles of Confederation. It is precisely what the Constitution was intended to prevent.
Q. What are the boulders that you suggest may still be coming down the hill?
A. The real moral force behind the challenge to the ACA wasn’t any technical legal argument. It was most clearly stated at the oral argument, by Justice Antonin Scalia. The counsel for the United States argued that the state legitimately could compel Americans to purchase health insurance, because the country is obligated to pay for the uninsured when they get sick. Scalia responded: “Well, don’t obligate yourself to that.”
Q. Does Justice Scalia really think that there’s no obligation to care for sick people? Why was he saying this?
A. The answer has to do with the structure of constitutional law. If you want to trash the ACA –- and Scalia did –- you have to assert constitutional limits that would exist even if there were no other way to deliver medical care to everyone.
This is why so many people (including, in the end, a near-majority of the Court) who were not Tough Luck Libertarians at all, who would find that philosophy repellent, nonetheless found themselves saying Tough Luck Libertarian things, and making claims based on a Tough Luck Constitution –- a constitution in which there is no realistic path to universal health care. That Constitution won’t be attractive unless Tough Luck Libertarianism is right that it is acceptable to deny people the medical care they need. The challengers to the ACA talked a lot about slippery slopes – at the bottom of this one was a law requiring you to buy broccoli – but there’s a slope in the other direction as well. Once you decide that it’s acceptable to hold your nose and make this kind of argument, it will be easier next time.
Q. The NFIB case which the Supreme Court decided was only one of dozens of cases that have been brought challenging the Affordable Care Act. One of those cases brought by Liberty University challenged that provision of the ACA requiring large employers to offer health insurance to their employees or pay a tax penalty. Liberty University lost that case in the Fourth Circuit Court of Appeals, but the Supreme Court remanded it for reconsideration. Is there any possibility the courts will find that Congress lacks the power to require large employers to offer health insurance? Would Tough Luck Libertarianism go this far?
A. It’s hard to see how. The employer mandate is described as a tax in the statute. The individual mandate isn’t, but the Court upheld it as a tax. Chief Justice Roberts also objected to the mandate because you don’t have to do anything to be subject to it. To be subject to the employer mandate, you have to decide to employ people. Congress has had the power to regulate economic transactions for nearly a century. Even the Roberts Court isn’t going to change that.
Q. Several states are refusing to implement the insurance market reforms imposed by the ACA and one state is considering legislation that would prohibit the licensure of an insurance plan that would participate in an ACA exchange. Does the Supreme Court’s decision give any hope to states that are still refusing to assist in implementing the ACA?
A. If states won’t participate in the health exchanges, then the Federal government can and will do it for them. That has already been happening. It has been well settled for years that state laws designed to disrupt the operation of a federal law are unconstitutional.
The one part of the Court’s decision that empowers the states to stay out of the federal scheme is Chief Justice Roberts’s decision that states could refuse to provide Medicaid to their poorest citizens. The Court ruled that the states could turn down the Medicaid expansion while continuing to participate in the old Medicaid program. One might have expected that no state would turn down such a good deal: the federal government will pick up 100% of the costs until 2016, with its contribution gradually declining to 90% in 2020 and thereafter. And there is added pressure to take the money, because previous forms of federal aid were cut off. Hospital associations agreed to accept cuts to their reimbursement rates, expecting that this would be more than made up by money from patients newly insured through Medicaid. States refusing the money would not only be hurting their own working poor. They’d be rejecting a huge infusion of cash into their economies, creating many, many jobs –- good jobs, for doctors and well-paid medical technicians. That money has a powerful multiplier effect, creating jobs outside the health sector as well.
Many Republican governors have now turned down the money, but that number is shrinking. Gov. Rick Scott of Florida, for instance, recently changed his mind. The big question mark is Texas. One in four Texans is uninsured. The ACA would insure almost two million of them. The expansion would give Texas an additional $52.5 billion from 2014-2019, which is more than half of the state’s annual budget. Gov. Rick Perry has insisted that he won’t take the money. If you are a hospital executive in Texas, you probably have a fiduciary duty to do all you can to defeat Rick Perry. Meanwhile, the Court has succeeded in hurting millions of people. Four days before Perry announced his decision, the federal Agency for Healthcare Research and Quality ranked Texas as having the worst health care in the nation. This is the Court’s notion of “liberty.”
Timothy S. Jost holds the Robert L. Willett Family Professorship of Law at the Washington and Lee University School of Law. He is a co-author of the casebook, Health Law, used widely throughout the United States in teaching health law, and of a treatise and hornbook by the same name. His other publications are simply to numerous to list.
Andrew Koppelman is John Paul Stevens Professor of Law, Northwestern University. He has written extensively about the legal debate surrounding the Affordable Care Act for Salon. His latest book, The Tough Luck Constitution and the Assault on Healthcare Reform, will be published by Oxford University Press on March 22, 2013 and available online and through bookstores everywhere.
“Andrew Koppelman has magnificently captured the current legal, political and policy-related lay of the land in Washington. His insightful analysis here should be mandatory reading for anyone concerned about the future of health care in America.”
–Tom Daschle, former Senate Majority Leader
Tara Ragone in Modern Healthcare on potential impact of U.S. Supreme Court hospital antitrust decision
Research Fellow & Lecturer in Law Tara Ragone appeared in Modern Healthcare on the potential impact of a recent U.S. Supreme Court decision which found a hospital not exempt from antitrust scrutiny, despite its claim to be protected from such through “state action immunity doctrine,” which, according to Modern Healthcare, “gives states wide latitude to regulate competition.”
The Court’s decision was unanimous, citing the fact that although the hospital system in question, Phoebe Putney Health System, “operates public hospitals under a $1-a-year lease from the Albany-Dougherty Hospital Authority,” it did not dispute that its latest hospital acquisition would give it “control of 86% of a six county market after the sale.” The Court, according to Modern Healthcare, ruled that Phoebe Putney’s financial relationship with the state was not sufficient to render its state action immunity defense tenable, and that “states must expressly grant antitrust immunity to local entities.”
The Modern Healthcare article notes, however, that the decision may also have impact on Medicaid ACOs under the ACA.
Modern Healthcare writes:
And it also could affect Medicaid ACOs. “The state action doctrine has been expanded, expanded, expanded to essentially immunize them,” [Matthew] Cantor said. “The Supreme Court is going to look a bit wary about stark anti-competitive behavior.”
But Tara Adams Ragone, a research fellow and lecturer at Seton Hall University School of Law who has written about how to structure Medicaid ACOs to avoid antitrust scrutiny, noted that the laws in New Jersey, New York, Oregon and Washington do state that they intend to authorize anti-competitive behavior.
“It doesn’t change things from my analysis,” she said about the Phoebe Putney decision. Yet she added that states may have to review statutes that don’t contain that explicit language.
The Phoebe Putney decision also doesn’t address the second prong of the state action doctrine, which requires states to actively oversee the anti-competitive behavior. “That’s where there’s a lot of work to be done,” she said.
Ragone and Cantor pointed out that it’s still unclear whether the FTC and U.S. Justice Department even intend to challenge ACOs as anti-competitive. A classic antitrust case involves entities colluding to fix prices—but the whole goal of an ACO is to reduce costs.
Read the full Modern Healthcare article, “Phoebe Putney dealt legal blow by Supreme Court.”
Filed under: Health Law, Health Reform, Medicaid
Professor Jacobi writes:
GOVERNOR CHRISTIE’S decision to expand Medicaid coverage to more residents will improve the health of many low-income New Jerseyans, and save the lives of some. In addition, the expansion dovetails with other reform efforts in the state, furthering implementation of innovative programs for the poor and vulnerable.
The governor’s announcement is great news for low-income individuals. The Rutgers Center for State Health Policy estimates that the expansion will lead to an enrollment increase of about 234,000 in NJ FamilyCare, which combines New Jersey’s Medicaid and Children’s Health Insurance Program.
The expansion addresses gaps in the current Medicaid system, under which many poor people were ineligible even if they had absolutely no income or assets.
The expansion will plug those gaps, allowing people to enroll so long as they are lawful residents with an income of no more than about $15,414 per year, which is about the gross income of a full-time minimum wage worker.
Health insurance coverage is important to personal health, and it is simply not true that all Americans have meaningful access to health care. As the Institute of Medicine of the National Academy of Sciences has found, people who have health insurance — including Medicaid — have better access to a regular source of health care. Those with no coverage, in contrast, are more likely to do without medically necessary care, particularly for chronic conditions, and to not fill prescriptions due to cost.
As a consequence, the uninsured are more likely to be in “fair” or “poor” health — and to die before their time. Medicaid expansion will keep people healthy and even save lives.
Read the full feature, “How Medicaid expansion will help New Jerseyans”
As I mentioned here last month, government leaders are turning their attention to mental health issues — focusing on diagnosis and access to treatment, in particular — in the wake of the horrific shootings at Sandy Hook Elementary School in Newtown, Connecticut in December. Even though it remains unclear whether or not the shooter suffered from any form of mental disorder, many leaders have argued that expanding treatment access for those suffering from mental disorders will prevent future tragedies.
As President Obama pledges to define the new mental health essential benefits under the Affordable Care Act (“ACA”), state leadership is also beginning to react. Perhaps somewhat surprisingly, South Carolina Governor Nikki Haley (R) — the leader of the state that had cut mental health funding by nearly 40 percent from 2009 to 2012 (mentioned here) — is now leading the call to increase funding and services for those diagnosed with mental illness.
In addition to her proposal to increase funding for mental health services by $16 million in the summer of 2012, Haley has now called for an additional $11.3 million in funding for the South Carolina Department of Mental Health (“SCDMH”); in fact, her total proposed budget for the SCDMH in the 2013 budget is $17 million. Haley has been particularly outspoken on the issue, noting that “[t]here is nothing wrong with someone who has a mental health issue…. There is something very wrong when that person doesn’t get treatment…. These are good productive citizens that deserve to live good, healthy life [sic]. And if given treatment they can be incredibly successful. If not given treatment, we as a state have failed.”
She has argued that increasing funding for mental health treatment can prevent another tragedy like the one seen at Newtown. Treating an increase in mental health funding as an alternative to implementing additional gun control or gun safety measures, Haley mentioned that “[n]o amount of gun control can stop someone from getting a gun when they want to get it. What we can do is control mental health in a way that we treat people.”
Undoubtedly, the increase in funding is an abrupt policy change from South Carolina’s recent history. From 2008 to 2012, the state was cutting funding to the South Carolina Department of Mental Health by an average of $70 million per year.
Ironically, however, Governor Haley is speaking during the exact same time that all states are deciding whether or not to expand their Medicaid programs under the ACA — which would affect many individuals’ access to mental health services. Just earlier this week, Ohio Governor John Kasich (R) agreed to expand his state’s Medicaid program, while Pennsylvania Governor Tom Corbett (R) has decided to opt-out of the expansion. Corbett’s refusal made Pennsylvania the eleventh state to decline to expand its Medicaid program. And who else is staunchly opposed to expanding her state’s Medicaid program?
South Carolina Governor Nikki Haley.
This past summer, Governor Haley announced “via Facebook that South Carolina ‘will NOT expand Medicaid, or participate in any health exchanges’” (emphasis in original). According to the Health Affairs Blog, South Carolina’s refusal to expand its Medicaid program would prevent more than 500,000 South Carolinians from being granted healthcare coverage. In other words, if Haley had decided to expand her state’s Medicaid enrollment pursuant to the ACA, South Carolina’s Medicaid enrollment would increase from about 951,000 currently (which is nearly one in every five South Carolinians) to nearly 1.5 million in FY 2014.
Governor Haley’s recent positions create a situation in which the state is increasing funding for mental health service offerings in the state, but is refusing to expand coverage (paid for in whole by the federal government for three years) to many individuals who currently lack access to the services. Needless to say, positions taken on health policy issues cannot be examined in isolation.
Indeed, according to the Congressional Budget Office, if all states agreed to opt-in to the Medicaid expansion under the ACA, 13 million more Americans would have their mental health treatments covered by Medicaid. However, given the policy positions like those of Governor Haley, this — unfortunately — remains highly unlikely. Treatment offerings can increase, but if individuals do not have insurance coverage to pay for those services, access and receipt of those services is likely to remain largely elusive.
Being involved in the immigrant community as a member and a professional, my concerns in any legal field almost instinctively gravitate towards how my fellow immigrants would be affected. Thus, when examining the regulatory changes to health law under the Patient Protection and Affordable Care Act (PPACA), I was disappointed to discover that the large pool of undocumented immigrants living in the United States will continue to receive absolutely nothing, regardless of the impact that this might have on them, U.S. citizens and Legal Permanent Residents.
The most important changes in the United States health care system under PPACA are probably the requirements for all individuals to have medical insurance and the expansion for eligibility for government-funded health insurance under Medicaid— which will include people from any age range so long as they meet certain financial criteria. However, none of the changes apply to undocumented immigrants. As noted by the Congressional Research Service,
… PPACA expressly exempts unauthorized (illegal) aliens from the mandate to have health coverage and bars them from a health insurance exchange. Unauthorized aliens are not eligible for the federal premium credits or cost-sharing subsidies. Unauthorized aliens are also barred from participating in the temporary high-risk pools.
PPACA mandates that all individuals maintain “minimum essential” health insurance (public or private) or else pay a “shared responsibility payment” to the government in the form of additional taxes at the end of the year. The individual health insurance requirement is a smart move because it will have the effect of injecting financial resources into the health care system through payments to private and public insurances. However, the exemption of over 10 million undocumented immigrants currently living in the U.S. from the individual health insurance requirement under PPACA is disadvantageous because it wastes resources that are readily available to further fund the health care system. Specifically, the exemption is wasteful because statistics show that the undocumented immigrant community includes a large number of healthy individuals who would provide more financial support for the system, while not exacting more in health care costs than they have paid in.
Under Medicaid, an individual is eligible if he or she is a U.S. citizen or a legal permanent resident for at least 5 years; no changes to these criteria were made through PPACA. And, again, undocumented aliens are forbidden from taking part in the Health Insurance Exchange and thereby whatever discounts one might expect from this competitive marketplace. Thus, the desirable benefit of having health insurance will remain unattainable for undocumented immigrants who are unable to afford the costly expenses of having non-discounted and un-subsidized private insurance. So for the large undocumented immigrant population there will be no change with regard to their accessibility to the health care system, and the only available coverage will continue to be through the Emergency Medical Treatment and Active Labor Act (EMTALA) and any available local government health benefits that might be offered in each state.
Having EMTALA as one of the few viable options for medical treatment for all uninsured individuals, regardless of their immigration status, is harmful to the financial stability of the health care system because the type of treatment that must be made available under EMTALA is for emergency medical conditions. Inherently, the costs for treating an emergency condition, which is defined as a condition that could reasonably be expected to place the health of the individual in serious jeopardy or cause serious impairments to bodily functions, is much higher than providing care for preventive medical treatment before the emergency stage. Thus providing health care government assistance to undocumented immigrants for preventive treatment could save the government money in the long run.
The possibility of negative consequences to U.S. citizens when denying affordable medical care to undocumented immigrants should be contemplated when considering an extension of health coverage for minimal essential benefits to undocumented immigrants. For instance, it would be far less costly for the government to subsidize pre-natal treatment for undocumented mothers-to-be (who will, by virtue of their being here, give birth to American citizens) than to assume the costs for the lifetime of a U.S. citizen who is born with permanent disabilities. Similarly, it would be less costly for the government to provide enough medical insurance coverage for an individual to be checked for HIV/AIDS rather than assume the costly treatment to U.S. citizens that could have acquired HIV/AIDS from an immigrant that did not know that he or she was carrying the disease.
Because providing undocumented immigrants some type of health benefit or greater access to health insurance would be more beneficial to the country in numerous ways, the U.S. government should consider putting to use all the financial and human power potential that the undocumented immigrant community offers— rather than casting them out as less than worthy human beings.
Noemi Simbron is a native of Peru and a current law student at Seton Hall University School of Law. Her interest in immigration law stems from her current work as a law clerk at a well known immigration law firm in Newark, N.J., and her own background. She hopes to one day represent her fellow immigrants in a variety of legal fields– including immigration.
Health experts and non-experts alike agree that the U.S. healthcare system is in need of significant reforms. Yearly increases in health insurance premiums are particularly vexing. To relieve some of the pressure, President Barack Obama promised significant reforms when he signed the Affordable Care Act (“ACA”) into law –- arguably the biggest healthcare overhaul in U.S. healthcare history since the passage of Medicare and Medicaid in 1965.
One of the key additions to the ACA is section 2718 of the Public Health Service Act, which requires health insurance issuers offering individual or group coverage to submit annual reports to the Secretary of Health and Human Services on the percentages of premiums that the issuer spends on reimbursement for clinical services and activities that improve healthcare quality and to provide rebates to enrollees when the issuers fail to meet the given year’s minimum requirements.
Under the direction of section 2718, the National Association of Insurance Commissioners (“NAIC”) developed uniform definitions and standardized calculating methodologies, which the HSS fully adopted, for requiring issuers to spend at least 80-85% of their premiums on actual medical care, with the remaining 15-20% going towards administrative costs, marketing, and other non-health care-related expenses. The NAIC defined these activities as the Medical Loss Ratio (“MLR”), also known as the 80/20 rule.
In response to consumer advocates’ concerns the final rule implementing the MLR standards, was revised to establish a mandatory onetime simple MLR informational notice requirement for issuers in the group and individual markets that meet or exceed the applicable MLR standard. The purpose of the notice was to inform the current subscribers of the new regulation. These onetime MLR informational notices are different from MLR rebate notices, which have to be send every time the issuer fails to comply with the 80-85% requirement The final MLR regulation entered finally into effect on June 15, 2012.
This new MLR rule reflects the ACA’s main goal to ensure that “hardworking, middle class families […] get the security they deserve” and that every American is protected from the “worst insurance company abuses.” Essentially, the MLR is intended to help ensure that all of us receive value for our premium dollars by requiring health insurance companies to spend at least 80-85% on healthcare and activities that improve the quality of healthcare (“QIA”). However, if the issuers spend less than the required minimum of 80-85%, they will have to return the portion of the premium revenue in excess of the limit as a rebate.
The new amendment requires all issuers, independent of whether they complied with the 80-85% MLR rule to notify their subscribers of this new regulation, which is an important step towards reinforcing consumer protection. However, as I argue in this post even the improved notice rule falls somewhat short of addressing all of the consumer advocates’ concerns.
In the global scheme of the current MLR regulation, consumer advocates are satisfied with the added notice requirements. However, they demand that the Department of Human Health and Services (“HHS”) strengthens the notice requirement, removes ambiguities and takes a step further by requiring health insurance companies to disclose how much they have spent on healthcare and quality of care in their current and previous year.
Consumer advocates believe that these improvements will increase health plan transparency, reduce consumer confusion, and ensure that all consumers receive information about how their premiums are spend. However, there is some criticism from health insurance companies about the added notice requirement. They claim that, in addition to the added cost of preparing and sending out notices, providing consumers with more information will only lead to more confusion as to how the 80-85% MLR is calculated. They reason that because the MLR has many value enhancing services that, according to the issuers, are not captured by the MLR formula, but nevertheless benefit all of us, we as consumers will draw mistaken inferences about insurer’s spending. Essentially, keeping us in the dark about how insurance companies spend OUR premium dollars, as was the case in the past, will only benefit us – along the lines “I know what’s best for you, so the less you the know/care the happier you’ll be.”
In an attempt to meet the demands of consumer and health insurance advocacy groups, the HHS adopted a balanced approach seeking to minimize the cost of additional notice requirement to the issuers while protecting the interests of consumers. Essentially, the HHS determined that while failing to require MLR information notices from issuers would result in reduced transparency, any greater notice requirements, like those demanded by the consumer advocates, would impose a greater burden on the issuers than is necessary. As such, the HHS decided to merely impose a simple onetime notice that only provides standard limited information about the MLR rule. However, the HHS misses the mark.
First, the MLR notices are intended to simply inform consumers of the existence of the new law. The fact that they were required to be sent only this year, raises the question of whether the notices will reach every subscriber as intended. Also, even assuming that they do reach every subscriber, the problem with the onetime notice is that all future subscribers will be out of luck and thus remain ignorant. However, Issuers that owe rebates will still be required to send out rebate notifications. There is an interesting notion in the regulation where the HHS explicitly “allows” issuers to voluntarily send out MLR notices. But, relying on issuers’ willingness to volunteer additional disclosure is not only impractical, but can be counterproductive because sending out random notices will only increase confusion and irritation among consumers. The ongoing annual MLR notices, on the other hand, will establish a ubiquitous presence, which is essential in creation of new expectations among consumers. Knowing where and how the premiums are spend, will likely reduce consumers’ resentment and disappointment with the relentless annual health insurance cost increases.
Second, the general information about the MLR rule and the actual MLR percentages is available on the HHS website and must be referenced in the MLR informational notices. Thus, the issuers’ fear that providing such detailed MLR information to the consumers in the notices will be too burdensome and counterproductive, is unjustified. Rather, by requiring the issuers to provide more information in the actual MLR notices, the HHS would only ease consumers’ access to such information and enable consumers to evaluate their issuer’s performance on the spot. Likewise, issuers contention that consumers might misinterpret the MLR information because the MLR formula is too complex and contains value enhancing services that according to the issuers, are not captured in the MLR formula, is unpersuasive because the NAIC and the HHS have already determined that MLR is a reliable measure of issuers’ performance in terms of their healthcare and quality of care versus administrative spending. Accordingly, the HHS should require issuers to include more information about the MLR in general, and demand that issuers’ provide their current and past year’s MLRs.
Finally, issuers argue vehemently that the mandatory notice requirement is too costly and imposes a great burden on the issuers. There appears little support for that. The HHS has already determined that the benefits to consumers will outweigh the administrative costs incurred by insurers through the issuance of notices to the policyholders. In particular, according to the HHS estimates, the total administrative cost for preparing and mailing notices to issuers that meet or exceed the MLR target would merely amount to approximately three million dollars, an average cost of $9,000 to 10,000 per issuer for the 2011 reporting year, translating to an average added cost of $0.16 per enrollee for preparing and sending a notice by mail, including labor and supply costs. Importantly, the estimates are for the first time notices only. By requiring frequent annual notices, the cost of such notices can be reduced even further as the notices become more automated. This only supports the recommendation that the HHS should require annual notices.
With these important amendments to the final rule the HHS can expect to achieve greater transparency and more accountability regarding how the issuers use their premium revenue, which is the main purpose of the ACA.
The HHS has promulgated an important consumer empowering regulation, but there is still a lot of work to be done. Consumers deserve to know how their premium dollars are spent and demand that the bulk of their premium dollars is primarily spent on health care. The MLR rules help move us toward that goal.
Ina Ilin-Schneider is a fourth year part-time student at Seton Hall University School of Law. She graduated summa cum laude from Hunter College in 2008 with a B.A. in Psychology and a minor in Economics. While an undergraduate, Ina worked as a teaching assistant in the “Statistical Methods in Psychology” class and as a research intern at the Memorial Sloan-Kettering Cancer Center performing analysis on prevalence of alcohol abuse in the gay community. During her second year of law school, Ina served as a Judicial Intern to the Magistrate Judge, the Honorable Mark Falk, providing assistance in legal research and drafting memoranda on legal questions. Ina intends to practice compliance law after she graduates in May of 2013.
Filed under: Accountable Care Organization, Health Law, Seton Hall Law
Just a quick note to commend this issue to readers of HRW. As I note in an introduction to the volume, the articles are uniformly insightful contributions to very topical issues in health law and policy.
Volume 42, Issue 4 (2012) Symposium
Implementing the Affordable Care Act: What Role for Accountable Care Organizations?
Accountable Care Organizations in the Affordable Care Act
Accountable Care Organizations: Can We Have Our Cake and Eat It Too?
Jessica L. Mantel
Adopting Accountable Care Through the Medicare Framework
Baraba J. Zabawa, Louise G. Trubek, and Felice F. Borisy-Rudin
Reopening the Loophole: Avoiding Securities Fraud Debt Through Bankruptcy
Andrew L. Van Houter
Volume Forty-Two E-Board
- Temi Kolarova
- Executive Editor
- Daniel E. Bonilla
- Managing Editor
- Desiree L. Grace
- Symposium Editor
- Gianna Cricco-Lizza
- Business Editor
- Michael C. Smith
- Senior Articles Editor
- Jason S. Cetel
- Articles Editors
- Christopher Fox
- Meghan McSkimming
- Elizabeth C. Ralston
- Lauren Winchester
- Comments Editors
- Eric M. Dante
- Melissa M. Ferrara
- Brandon M. Fierro
- Rebecca Garibotto
- Terrance Romasco Gallogly
- Joseph K. Jakas
- Submissions Editors
- Robert S. Garrison Jr.
- Ryan P. Montefusco
- Andrew L. Van Houter
In response to the jarring and horrific shooting at Sandy Hook Elementary School in Newtown, Conn. on Dec. 14, Pres. Obama signed a number of executive orders last week, flanked by schoolchildren and Vice Pres. Biden. The official investigation into the contributing factors and details surrounding the mass shooting continues, but much of the public discourse on the policy response has already begun in earnest. Most solutions seem to be focused on addressing two identifiable “causes” of the shooting: first, the availability of guns (and especially, semiautomatic weapons), and second, the lack of mental health care services available to Americans who struggle with mental disorder.
Although it is clear that a high-capacity gun was used to perpetrate the assault, there has been no clear evidence that the shooter had been diagnosed with any mental disorder. In fact, assuming a link between mental disorder and the Newtown shooting continues to reinforce destructive stereotypes and stigma about mental illness, according to many experts. As many who study the subject area know, mental disorder does not equal violence. Instead, those with mental disorder are no more likely to be dangerous than those without a diagnosis. Further, at this point, no one could say with confidence that mental illness was a contributing cause or even a factor that led to the magnitude or occurrence of the shooting – opposite, of course, from the individual’s ability to get a high-capacity semiautomatic weapon.
Ironically, however, given President Obama’s response last week, this may be a vital inflection point in the fight to extend healthcare coverage for those diagnosed with mental illness. As I have noted in the past here, states are trimming back their mental health budgets – even while up to 20 percent of Americans are diagnosed with some form of mental illness each year. In a confounding policy response, a handful of states have cut funding by more than 30 percent since 2009.
In such a climate, many advocates hailed the Affordable Care Act (“ACA”) as an opportunity to improve mental health parity and coverage throughout the country. Finally, many argued, individuals diagnosed with mental disorder would have their treatments covered by plans established within state-run exchange plans and the Medicaid expansion. But, through last year, this seemed to be likely an unrealized hope, as the Department of Health and Human Services (“HHS”) loosened the regulations governing the scope of essential health benefit coverage under the ACA.
Assumedly in an effort to increase the likelihood of state buy-in to the ACA, two recent publications by HHS gave states extremely wide latitude in determining what each state’s benchmark plans were required to cover for mental health services. In addition to giving states the ability to substitute coverage for certain services each state saw fit, HHS did not explicitly tell the states which mental health services they must cover. In other words, HHS guidance did not set a “federal floor” for the states’ plans. Further, other guidance seemed to conflict with a liberal reading of mental health essential health benefits. In defining an essential health benefit under the ACA, a 2011 Institute of Medicine report noted that states were required to only cover services that were “medically necessary,” without sufficient guidance. Indeed, holistic mental health treatment does not always meet this limiting requirement. Thus, it seemed – to the dismay of many mental health advocates – that insurance coverage may not be substantially changed or expanded under the celebrated ACA.
That is, until last week. As part of President Obama’s response to the shootings, he said he would address that gap in the ACA. He specifically noted that he would contact state officials to clarify both Medicaid requirements and new exchange plan requirements. In effect, the President may be establishing a specific “federal floor” – a minimum of mental health services that states must cover. Importantly, President Obama also mentioned that regulations that require equal coverage for mental health services (parity requirements) would be finalized.
Thus, even as advocates cringe to hear the public’s further stigmatizing and (at least to this point) unfounded linkage between mental disorder and the horror seen at Sandy Hook, mental health coverage under the ACA may actually be expanded after all. This reversal in policy is undoubtedly stunning, but how much coverage for individuals diagnosed with mental disorder actually changes – and how and if this expansion actually prevents future incomprehensible massacres like Newtown – remains to be seen.
Filed under: Health Law, Health Reform
On September 19, the Oklahoma attorney general Scott Pruitt filed an amended complaint in Oklahoma v. Sebelius asking the court to decide that the IRS rule permitting federally facilitated exchanges to issue premium tax credits is illegal. While this case will almost certainly be dismissed for lack of standing, this issue is unlikely to go away. Reproduced below is testimony I recently submitted to a House Committee explaining why the IRS rule should in fact be sustained.
The Internal Revenue Service’s Implementation and Administration of the Democrat’s Health Care Law
Testimony of Timothy Stoltzfus Jost
In a little more than a year, millions of uninsured Americans will begin enrolling in health insurance plans through the American Health Benefits Exchanges. These Americans– your constituents– will be able to purchase health insurance because of the availability of premium tax credits. At this point, it appears that many states are choosing not to create their own exchanges in 2014, but rather to have their citizens purchase health insurance through federally facilitated exchanges. It is essential that these uninsured Americans be able to receive premium tax credits through these federal exchanges. My testimony addresses the provisions of the Affordable Care Act that will make it possible for this to happen.
My name is Timothy Stoltzfus Jost and I am a law professor at Washington and Lee University. I am also a consumer representative to the National Association of Insurance Commissioners and an elected member of the Institute of Medicine. I have written extensively about the Affordable Care Act, and blog regularly about Affordable Care Act implementation at www.healthaffairs.org/blog.
My remarks today address assertions by Michael Cannon of the CATO institute that the Department of the Treasury’s rule providing for the federal exchange to issue tax credits is not authorized by the Affordable Care Act. This assertion has been widely publicized and seems to be causing confusion among state lawmakers. Mr. Cannon’s position, however, is based on a misunderstanding of the law, its structure, and history, as I will explain.
The Affordable Care Act Exchanges and Premium Tax Credits
To understand this issue it is necessary to understand the role of the exchange in the Affordable Care Act. The American Health Benefits Exchange is fundamentally a market in which health insurance is bought and sold. The exchange is also responsible for ensuring that insurers who sell their products through the exchange meet certain minimum standards to ensure that individuals and small employers who purchase in the exchange are getting value for their dollar. Finally, the exchange is the gateway to federal premium tax credits, Medicaid, and other assistance programs for those unable to afford health insurance. The exchange concept has until very recently enjoyed broad bipartisan support as a tool for making private sector health insurance widely available and affordable to Americans. Indeed, Congressman and Vice President nominee Paul Ryan’s Roadmap for America includes health insurance exchanges.
Section 1311 of the Affordable Care Act asks the states to establish American Health Benefits Exchanges. The federal government cannot order a state to operate a federal regulatory program, so section 1321 of the ACA authorizes the Secretary of Health and Human Services to establish a federally facilitated exchange in states that choose not to establish their own exchange.
Mr. Cannon takes the position that federal exchanges cannot offer premium tax credits. He bases this opinion on two subsections of section 36B of the Internal Revenue Code (created by section 1401 of the ACA), which provides for tax credits to help middle-income Americans afford health insurance. In defining the premium tax credit amount and the coverage months for which it is available, sections 36B(b)(2) and 36B(c)(2)(A) refer to persons “enrolled in [a qualified health plan] through an Exchange established by the State under section 1311.” Mr. Cannon argues that this language precludes premium tax credits being issued through the exchanges operated in the states by the federal government. If this is true, it is likely that many–perhaps most–Americans will be denied access to an important middle-class tax benefit in 2014, as it now appears that many states will, at least initially, have federally facilitated exchanges.
In a recent article, Mr. Cannon, together with Professor Jonathan Adler of Case Western University, claims that this language is not only unambiguous but also intentional, that Congress intended to punish states that refused to establish exchanges by refusing premium tax credits to their residents. Cannon and Adler further claim that final rules promulgated by the IRS making premium tax credits available through federal as well as state exchanges are unauthorized by law, and thus illegal.
If this claim is true, uninsured constituents of members of this committee stand to lose billions of dollars in federal tax relief that would have assisted them in purchasing health insurance.
The Affordable Care Act Explicitly Authorizes Federal Exchanges to Provide Premium Tax Credits
Fortunately for your constituents, Mr. Cannon’s claims are simply not true. If the sections that he cites were the only relevant sections of the Affordable Care Act, and if the legislative history and structure of the ACA could be simply ignored, his statutory construction claim would be plausible. But the availability of tax credits through federally facilitated exchanges is recognized through the language of the ACA itself. Moreover, the legislative history of the ACA also establishes that Congress understood that premium tax credits would be available through both federal and state exchanges. The IRS is explicitly authorized by Congress to interpret the statute and its interpretation of the law will be given deference by the courts. The existence of exchanges in every state was assumed both by the Congressional Budget Office and by both proponents and opponents of the ACA as it was being debated. Finally, the structure and purpose of the ACA requires that state or federal exchanges offer premium tax credits in every state.
I begin with the language of the ACA itself. The term “exchange” is a defined term under the ACA, a point that Mr. Cannon does not mention in his article but that would surely be paid great attention by the courts. Section 1563(b) of the ACA states: “The term ‘Exchange’ means an American Health Benefit Exchange established under section 1311 of the Patient Protection and Affordable Care Act.” Section 1311 literally requires that the states “shall” establish an American Health Benefits Exchange by January 1, 2014. Because the Constitution prohibits the federal government from literally requiring states to establish exchanges, however, section 1321(c), provides that “the [HHS] Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State.” Under the ACA’s definition of exchange, the term “Exchange” in section 1321 means a section 1311 exchange. This is reinforced by section 1321 itself, in which the term “such Exchange,” refers to the “required exchange” mentioned in section 1321(c)(1)(B)(i), which is to say the 1311 exchange. When section 1321 directs HHS to establish an “Exchange,” therefore, it means to establish a section 1311 exchange, which section 36B authorizes to provide premium tax credits. Moreover, section 1311(d)(1) defines an exchange as an exchange established by the state, therefore by definition a section 1321 federally facilitated exchange is an exchange established by a state under section 1311.
Section 36B is not the only section of the ACA that imposes duties on the state and federal exchanges relevant to premium tax credits. Section 1311(d)(4)(G) requires exchanges to provide their enrollees with premium calculators that include a deduction for premium tax credits. Section 1311(d)(4)(I), requires exchanges to forward to the IRS information about enrollees who are eligible for premium subsidies. Section 1311(d)(4)(J), requires an exchange to notify employers if their employees are receiving premium tax credits. Finally, section 1413 requires state and federal exchanges to use streamlined applications and eligibility assessments to help people qualify for “health subsidy programs,” which programs specifically include premium tax credits, see section 1413(e)(1). All of these sections apply to federal as well as state exchanges.
Most importantly, a third subsection of section 36B itself clarifies that premium tax credits are available through both state and federal exchanges. The ACA is composed of the Senate version of the Patient Protection and Affordable Care Act, Public Law 111-148, and the Health Care and Education Reconciliation Act, Public Law 111-152. The Senate adopted the bill that became Public Law 111-148 in December of 2009, but the House adopted it only in March of 2010. Shortly thereafter, the House and Senate adopted HCERA, through which the House made certain changes in the Senate bill. As a later-adopted statute, HCERA takes precedence over that of the PPACA, if there is a contradiction. Moreover, since the adoption of HCERA was necessary to secure House adoption of the Senate bill, it is doubly important that the provisions of HCERA be taken seriously. The House bill contained only a federal exchange. Section 1004 of HCERA adds to IRC section 36B, subsection 36B(f)(3) which requires both 1311 and 1321 exchanges to provide certain information regarding premium tax credits to the IRS and to taxpayers. Cannon and Adler admit the existence of this provision but simply say it is meaningless, as 1321 exchanges cannot authorize premium tax credits. This position, however, violates another canon of statutory construction–that every provision of a congressional enactment should be given effect.
It should be noted that several other sections of the ACA use the language on which Mr. Cannon relies–”an Exchange established by the State under section 1311.” One of them is section 2001, which prohibits states from reducing Medicaid eligibility until an exchange “Established by the State under section 1311 is operational.” If Mr. Cannon’s interpretation of the ACA is correct, states that decide not to establish a state exchange will be barred indefinitely from changing their Medicaid eligibility requirements. But this is not what the law means.
The Affordable Care Act’s Legislative History also establishes that Federal Exchanges can offer Premium Tax Credits
Mr. Cannon’s interpretation of the ACA is also refuted by the legislative history of the ACA. The Senate bill which became the ACA was derived from the S 1679, the Senate Health, Education, Labor and Pensions Committee bill and S 1796 which emerged later from the Senate Finance Committee. Each of these bills included state and federal exchanges, which were called Gateways in the HELP bill.
The HELP bill (section 142, adding section 3104 of the Public Health Services Act) created an elaborate structure under which states could either establish exchanges themselves (“establishing states”), request the federal government to establish an exchange in the states (“participating states”), or fail to do either, in which case four years after the enactment of the statue the federal government would create a fallback exchange in the state. Premium tax credits were available in establishing and participating states, but would only be available through the federal fallback exchanges in states that complied with the employer responsibility provisions for state and local employees. In other words, the states were threatened with loss of premium tax credits, not for failing to establish exchanges but for not complying with the employer responsibility provisions for their employees.
The Finance Committee bill did not use this elaborate structure. In fact, the rules it creates are very similar to the final ACA. It creates section 2235 of the Social Security Act, which provides that states “shall” establish an exchange, and sets out the duties of the exchange. Section 2225(b) provides, in language very similar to current ACA section 1321, that HHS shall contract with a nongovernmental entity to operate an exchange in states that fail to “establish and operate” an exchange in states that fail to create one within 24 months. The Finance Committee Report refers to these federally established exchanges as “state exchanges.” In a number of places, including the precursor of the current premium tax credit provision, the bill refers to exchanges “established by the state,” but nowhere does it provide, as did the HELP bill, that premium tax credits would not be available in the any of the exchanges created by the federal government.
The provisions of the current ACA addressing this issue are taken largely from the Finance Committee bill, which makes sense because the Finance Committee has jurisdiction over tax matters. The punitive provisions of the HELP bill were abandoned.
The Senate debated the ACA extensively during November and December 2009. The version of the Act they were considering included both state and federal Exchanges. Throughout the debate, Senators assumed that tax credits would be available in all 50 states. Thus Senator Bingaman stated on December 4, 2009, that the ACA “includes creation of a new health insurance exchange in each State which will provide Americans a centralized source of meaningful private insurance as well as refundable premium tax credits to ensure that coverage is affordable.” Senator Johnson stated on December 17, “the legislation will also form health insurance exchanges in every State,” which will “provide tax credits to significantly reduce the cost of purchasing that [insurance] coverage.”
If Congress had meant to limit premium subsidies to state-established exchanges, as an incentive to States, one would have expected the Finance Committee report on S. 1796 to have mentioned this, and for at least one Senator to have pointed this out during the debate in November and December 2009.
Most importantly, the Congressional Budget Office (together with the Joint Committee on Taxation) provided Congress on November 30, 2009, with an analysis of the impact of the legislation on premiums that assumed that premium tax credits would be available in all states, making no distinction between federal and state exchanges. Over the next few days this analysis was discussed by Republican Senators Grassley, Enzi, and Coburn. None raised what Cannon and Adler see as an obvious point–that the CBO analysis was flawed because it failed to recognize that premium tax credits would not be available though federally facilitated (sec. 1321) exchanges. In fact, the CBO repeatedly provided cost estimates of the ACA and HCERA in late 2009 and early 2010, but never suggested that premium tax credits might be reduced if states failed to establish exchanges. In their most recent report from two weeks ago updating ACA coverage estimates in the wake of the Supreme Court decision, the CBO and JCT reiterates again that premium tax credits will be available though state, federal, and partnership exchanges. As Yale Professor Abbe Gluck notes in a recent blogpost (and forthcoming article), Senators often don’t listen to each other, but they all listen to the CBO, which assumed that premium tax credits would be available to all Americans in all states.
Mr. Cannon claims, however, to have found a smoking gun, a colloquy between Senators Baucus and Ensign during the Finance Committee debate on the bill, in which, they claim, Senator Baucus admits that premium tax credits could not be made available through federal exchanges. In fact, the colloquy had nothing to do with federally facilitated exchanges, but rather with whether the Finance Committee or the Judiciary Committee had jurisdiction over malpractice reform legislation that Ensign wanted to attach to the bill. In fact, there is nothing in the legislative history of the ACA that supports the notion that premium tax credits will not be available through federal exchanges.
Mr. Cannon argues that Congress prohibited the federal exchanges from offering premium tax credits as a way of encouraging the states to adopt exchanges. It is in fact clear that Congress favored state exchanges, and offered generous grants to the states–which to date have totaled nearly $850 million dollars with more on the way. States that fail to establish exchanges will also lose some control of their insurance markets. But Congress did not try to “coerce” states to create state exchanges by threatening their citizens with loss of billions of dollars of premium tax credits. Indeed, under the Supreme Court’s recent Medicaid decision, such coercion might have been suspect.
The Structure of the Affordable Care Act Makes it Clear that Federal Exchanges may Offer Premium Tax Credits
Moreover, not only do a number of provisions of the ACA, already described, refer explicitly to federal and state exchanges performing functions relating to premium tax credits, but the entire structure of the ACA’s insurance reforms are based on the availability of premium tax credits in all states. The ACA’s guaranteed issue and community rating requirements apply to insurers in all states, regardless of whether they have federal or state exchanges. So do the ACA’s risk mitigation programs. So does the ACA’s individual mandate. The premium tax credits are intended to bring millions of new participants into insurance markets, and if they are not available in many states, the nature of insurance markets will change dramatically, increasing the risk of insurers and decreasing availability to middle-income Americans. If this was the intent of Congress, it surely would have made it far more evident.
The ACA is admittedly not a model of clear drafting. It contains three sections with the same number (1563) and amends an existing provision of the Public Health Services Act inconsistently twice within the scope of a few pages. The Senate bill was not supposed to be the final law. Only the Senate election in Massachusetts in early 2010 made a conference committee bill that would have reconciled the House and Senate versions and cleaned up the current bill impossible. The courts are unlikely to find the “established by the state” language a “scrivener’s error.” But the courts will interpret the ambiguous language in the context of the ACA’s structure and purpose, in light of the ACA’s legislative history, and putting great weight on the HCERA amendment, and find that federally facilitated exchanges can in fact issue premium tax credits.
The Department of the Treasury is Authorized to Interpret Section 36B and the Courts will Defer to its Interpretation
Finally, the courts are likely to grant great deference to the IRS premium tax credit regulation. Section 36B explicitly grants authority to the IRS to interpret the section. A recent CRS Legal Analysis of this issue states clearly that under the ruling “Chevron doctrine,” derived from the case of Chevron v. NRDC, courts will defer to the interpretation of the IRS of section 36B unless they conclude that “Congress has spoken to the precise question at issue.” As should by now be amply clear, Congress has not clearly said that federal exchanges cannot grant premium tax credits. If a court finds the issue ambiguous, however, “the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” In this situation, “legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.” As noted above, the interpretation of the ACA by the IRS is completely consistent with rather than “manifestly contrary” to the statute, and thus will be granted judicial deference.
In 2014, millions of your constituents will gain access to private health insurance coverage with assistance with premium tax credits. It was the hope of Congress and remains the hope of the federal agencies implementing the ACA that they will receive these premium tax credits through state exchanges. But the ACA also created fallback federal exchanges, which will be available in states represented by other members of this Committee to ensure that all Americans get access to affordable health insurance. The Department of the Treasury has correctly determined based on the language and history of the ACA that premium tax credits will be available through all exchanges, state and federally facilitated. None of your constituents will be denied the tax credits made available through the ACA to ensure them access to affordable health insurance. I thank you for the opportunity to address this important issue.
 Jonathan Adler and Michael Cannon, Taxation without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA (2012), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2106789
 S 1796, http://thomas.loc.gov/cgi-bin/query/z?c111:S.1796:/
 Senate Report 111-89
 155 Cong. Rec. S12358.
 155 Cong. Rec. S13375.
 155 Cong. Rec. S12107, 12/2/09
 155 Cong. Rec. S12378, 12/4/09
 155 Cong. Rec. S13687
 467 U.S. 837 (1984).
Legal blogs have covered the Medicaid expansion in great detail. Now the law review scholarship is starting to emerge. Here’s one piece sure to make an impact: Nicole Huberfeld, Elizabeth Weeks Leonard, and Kevin Outterson on “Medicaid and Coercion in the Healthcare Cases.” From the abstract:
For the first time in its history, the Court held federal legislation based upon the spending power to be unconstitutionally coercive. Chief Justice Roberts’ plurality (joined for future voting purposes by the joint dissent) decided that the Medicaid expansion created by the ACA was a “new” program to which Congress could not attach the penalty of losing all Medicaid funding for refusing to participate. NFIB signals the Roberts Court’s interest in continuing the Federalism Revolution.
The Court relied on, seemingly modified, and strengthened at least two existing elements of the test for conditional spending articulated in South Dakota v. Dole. Clear notice and germaneness now appear to be folded into the newly fashioned yet undefined coercion doctrine, which relied on quantitative as well as qualitative analysis to determine that the Medicaid expansion was unconstitutionally coercive. The Court is now actively enforcing the Tenth Amendment to protect states from federal spending legislation. NFIB raises many questions regarding implementation of the Medicaid expansion as well as the ACA. The dockets will experience the reverberations of these open questions, as well as the Court’s invitation to explore the coercion doctrine.
For the near future, at least, the authors believe we are “plunged into Justice Cardozo’s ‘endless difficulties.’” For the long term, policymakers may want to take the advice of political science professor Andrea Louise Campbell:
[States are] ill suited to redistributive policy because they [have] an incentive to provide the lowest possible means-tested benefits in order to repel poor people and retain affluent taxpayers. The Great Recession also laid bare the devastating costs of the inability of nearly all states to run budget deficits and to engage in countercyclical spending during economic downturns. For many years, governors have urged the federal government to take on the portion of Medicaid that pays for nursing home stays for the disabled elderly.
Maybe now the time has come to federalize Medicaid altogether. Doing so would remove an enormous burden from state budgets and put an end to variations in state policy toward the poor that can have near-barbaric results. For example, in Texas, one of the states whose government plans to opt out, the working parents of Medicaid-eligible children can only get coverage for themselves if their income is below 26 percent of the federal poverty level. For a family of three, that’s $4,900 in annual income. Constitutionality is no barrier to federalization of Medicaid. The only question is whether it is politically feasible.
Huberfeld comes to a similar conclusion in another paper, arguing that “medicine generally and Medicaid specifically are already on the path to nationalization” and “Medicaid should be nationalized because federalism ideals are generally not served by the current structure.”
First, late last month the Obama administration announced a joint effort between the federal government and major health insurance companies to fight fraud. According to the New York Times, under the partnership – called the National Fraud Prevention Partnership – the federal government and health insurance companies will share data, trends, and tools to find “upcoders” and other fraudulent billers. As the article indicates, it is a partnership that makes much sense from the federal government’s perspective as the financial strain on the federal healthcare programs grows ever-tighter, and the return-on-invest for the governments’ fraud investigations is somewhere between $7-to-$1 and $15-to-$1 – no matter the actual number, a good investment for Uncle Sam.
Second, just last week, the New York Times reported that Hospital Corporation of America (“HCA”) Healthcare, the major for-profit hospital chain that owns 163 hospitals across the country and a party that has been no stranger to fraud settlements in the past, is under investigation for unnecessary cardiac procedures at its hospitals that sometimes resulted in clear patient harm.
With anti-fraud tools built in to the Affordable Care Act, an increase in funding to fight healthcare fraud throughout the country, and intensified focus, expect the anti-fraud efforts of the federal agencies to not only continue, but intensify. Those providers who offer clearly unnecessary procedures will have very little defense. Indeed, in addition to overbilling the federal-government and private insurance payors, causing the costs of healthcare for us all to increase, these providers are harming patients by subjecting them to more (and often dangerous) care – which sometimes results in life-threatening harm for no reason.
However, with these increased resources, the challenge of differentiating which cases reflect clear, intentional, and fraudulent overtreatment from the investigations that reflect poor or inefficient decision-making by the provider will be formidable. And with the blunt, unforgiving False Claims Act in the back pocket of the federal government’s investigators, providers should take extra caution when trying to decide whether or not to order that extra test or procedure.
Governors and legislatures are keeping their options open as they mull over whether or not to expand their Medicaid programs. Medicaid expansion was slated to be responsible for half of the realization of the Affordable Care Act’s promise to enroll 32 million currently uninsured people. After NFIB v. Sebelius, that’s a harder lift, as the expansion can be regarded by the states as optional. Some governors have promised to reject Medicaid expansion on federalism grounds, sometimes expressing themselves somewhat intemperately. Others have raised pragmatic concerns, including the need to carefully assess the long-term budgetary effects, and questions about the value of Medicaid coverage. Two recent publications add to the discussion.
The Congressional Budget Office on Tuesday issued estimates of the federal cost of the ACA in light of states’ possible refusal of Medicaid expansion. The short takeaway is that the CBO projects that NFIB v. Sebelius will save the federal budget about $84 billion. Why? Because the CBO now projects that only one-third of the people newly eligible for Medicaid will reside in states that will fully accept the expansion, while one-half will live in states that strike a deal with the Secretary to only partially adopt the expansion (although the Secretary has not to this point indicated a path to that result), and one-sixth will live in states that reject the expansion in toto. As the CBO points out, the federal budget savings are large because most of those denied Medicaid coverage in refusing states will not be eligible for federal subsidies in the exchanges — a point I’ve make several times on this site (see here, here, and here).
In his excellent post on these issue on Balkinization, Joey Fishkin points out that the real story isn’t the effect of state refusal on the federal budget, but on state and local budgets. Fishkin argues that:
[T]there is a flip side to those federal savings. In states that don’t expand Medicaid, there will be more uncompensated care. Someone will have to pay for that: specifically, some combination of the state government, localities, and everyone in the state who pays insurance premiums. The new CBO estimate thus underscores the fact that choosing to opt out of the Medicaid expansion entirely is, in fiscal terms, an extremely bad move for states and their people.
What about the value of Medicaid the poor people who get coverage? Part of the push-back to Medicaid expansion has been the suggestion that the Medicaid system is dysfunctional and its extension is therefore unwarranted. A group of researchers at the Harvard School of Public Health published a timely analysis in the New England Journal of Medicine on Wednesday providing some evidence that Medicaid coverage is, in fact, valuable to recipients. The study examined the outcomes of Medicaid expansion to previously uncovered adult populations in three states, compared with the outcomes for similar populations in nearby states that did not expand Medicaid coverage. The authors concluded,
Our study documents that large expansions of Medicaid eligibility in three states were associated with a significant decrease in mortality during a 5-year follow-up period, as compared with neighboring states without Medicaid expansions. Mortality reductions were greatest among adults between the ages of 35 and 64 years, minorities, and residents of poor counties.
Correlation is not causation. But this study provides some information suggesting that, when it comes to expanding Medicaid, the game is worth the candle.
Decisions regarding programs as large as Medicaid are properly reached after careful consideration. Now, as governors and legislatures think through their Medicaid options, they have a bit more data to consider. Refusing Medicaid expansion presents financial strains for state and local governments’ uncompensated care and safety-net financing, and may increase private insurance rates due to cost-shifting. The decisions made by states and local governments under those circumstances may well cause dislocations for the safety net providers themselves, as they scramble for funds to make up for those they anticipated coming from increased Medicaid receipts. And, as the Harvard study suggests, refusing states’ poor populations may face increased mortality, rendering a difficult financial decision one that is truly life and death.
John Roberts’ jurisprudential wizardry in NFIB has been compared with the artistic genius of pro wrestlers and rappers. Poor Americans in states newly empowered to resist the ACA’s Medicaid expansion may need even more ingenuity to get themselves insured. Both Kevin Outterson and my colleague John Jacobi have observed the perplexing predicament imposed on the poor in states that keep Medicaid 1.0, and resist Medicaid 2.0. From Jacobi’s post:
The reform provides insurance subsidies through tax credits. The credits are calculated on a sliding scale, according to household level, for people with income up to 400% of FPL [the federal poverty line] — subsidizing more generously someone earning 200% of FPL, for example, than someone earning 350% of FPL. But, under 26 USC 36B(c)(1), credits will not be distributed to those with incomes below 100% of the FPL. Why? Because Congress assumed states would take up the Medicaid expansion, obviating the need for exchange-based subsidies for the very poor. . . .Bottom line: states rejecting Medicaid 2.0 will not only forego about 93% federal funding for the program between 2014 and 2022, but they could also be depriving the poorest of the uninsured from any shot at coverage — potentially affecting millions nation-wide.
Georgia hospitals are already worried about the “unexpected prospect of lower reimbursements without the expanded pool of patients” to be covered by the Medicaid expansion:
Last year, Georgia hospitals lost an estimated $1.5 billion caring for people without insurance. The promise of fewer uninsured is what led the national hospital industry to agree to the health law’s $155 billion in Medicare and Medicaid cuts over a 10 year period. The Medicaid curveball comes at a time when Georgia hospitals are already in the throes of a massive industry transformation to improve quality and efficiency driven by market forces as well as the new law. Hospitals face lower payments from insurers and pressures to consolidate. One in three Georgia hospitals lose money. All are busy preparing for new standards under the law that, if not met, could mean millions of dollars in penalties.
It’s hard to imagine how hospitals like Grady can continue to act as a safety net in that environment. The article notes that “Georgians already pay for the cost of care provided to people without insurance through higher hospital bills and inflated insurance premiums.” If that trend continues, all the states refusing Medicaid 2.0 may end up doing is shifting the cost of the Medicaid expansion population from national taxpayers to Georgians with insurance. The superwealthy Americans of Marin County and Manhattan ought to send Georgia Governor Nathan Deal a thank you note for keeping Georgians’ problems for Georgians themselves to solve.