Yes, the Federal Exchange Can Offer Premium Tax Credits
Whatever else the Affordable Care Act may accomplish, it has provided endless entertainment for law professors. The latest ACA kerfuffle involves the discovery by critics of the ACA of an ACA drafting error that would seem to deprive millions of uninsured Americans of tax credits to purchase health insurance and invalidate regulations recently proposed by HHS and the Treasury Department. The mistake is found in section 1401 of the ACA, which creates a new section 36B of the IRC. Two subsections of 36B ((b)(2)(A) and (c)(2)(A)(i)) suggest that premium tax credit eligibility under the ACA depends on the applicant being enrolled in a qualified health plan “through an Exchange established by the State under section 1311.” This would in turn suggest that individuals enrolled in a qualified health plan through a federal exchange established under section 1321(c) would not be eligible for premium tax credits, contrary to the recent proposed regulations.
That this is a drafting error is obvious to anyone who understands the ACA. Section 1311 of the ACA requests the states to establish American Health Benefit Exchanges and sets out the duties of the exchanges. Section 1321 of the ACA, however, provides that if a state elects not to establish and exchange or fails to do so, HHS must “establish and operate” an exchange in such a state and “take such actions as are necessary to implement” the other requirements of title I of the ACA, which includes section 1401. There is no coherent policy reason why Congress would have refused premium tax credits to the citizens of states that ended up with a federal exchange. None of the CBO reports scoring the ACA suggest that premium tax credits would only be available though 1311 state exchanges and not through 1321 federal exchanges. It is, finally, highly unlikely that the House, whose bill included only a federal exchange, would have approved a bill that only provided tax credits through state exchanges but not through the federal exchange.
No one pretends that the ACA is a model of statutory drafting. The bill, for example, contains three section 1563’s. No one intended the current ACA to become the final law. It was the Senate bill, enacted after the House bill, which was to go through conference before the final ACA was enacted. The election of Scott Brown in Massachusetts, and the adamant refusal of the Republicans to allow the legislation to become law without a supermajority in the Senate, doomed efforts to craft a final bill. Of course, major pieces of legislation are often replete with drafting errors. They are commonly followed by technical correction bills, which are often adopted by unanimous consent. If Congress were functioning as a normal deliberative governing body rather than as the legislative equivalent of trench warfare, errors in the ACA would long ago have been fixed.
But now we seem to be stuck with the textualists delight: a statute whose words clearly say what Congress clearly did not mean.
Is there a way out of this quandary? One possibility is to simply recognize that this is a drafting error. The Supreme Court has occasionally recognized that it is appropriate to exercise common sense in recognizing that “a busy Congress is fully capable of enacting a scrivener’s error into law.” Koons Buick, Pontiac, GMC, Inc. v. Nigh, 543 U.S. 50, 65 (2004) (Stevens concurring). But we do not need to rely on the courts to correct this error. Congress corrected it itself.
Four days after Congress passed the Patient Protection and Affordable Care Act, it enacted the Health Care and Education Reconciliation Act of 2010. Section 1004 of HCERA amended section 36B(f) of the IRC to impose on exchanges established under section 1311(f)(3)—that is, state exchanges—and under section 1321(c)—that is federal exchanges, the obligation to report to the IRS and to the taxpayer information regarding tax credits provided to individuals through the exchange. In this later-adopted legislation amending the earlier-adopted ACA, Congress demonstrated its understanding that federal exchanges would administer premium tax credits.
Section 36B(g) gives the Secretary of the Treasury the responsibility of issuing regulations to implement section 36B. This includes the authority to reconcile ambiguities in the statute, such as the inconsistency between subsections (b), (c), and (f) of 36B. In proposed regulations published on August 17, Treasury has proposed to recognize as eligible for premium tax credits any individual who is enrolled in a qualified health plan through an exchange and who meets other eligibility requirements, and adopts the HHS proposed definition of an exchange, which includes a federally-assisted exchange.
Under the Chevron rule, this official construction of an ambiguous statute should be accorded deference by any reviewing court. In fact, however, there will be no judicial review of this determination. It is not possible to conceive of a person who would be injured in fact by this interpretation of the rule such that they could present a case or controversy under Article III. The possibility, expressed by some, that a state official might be able to challenge the IRS rule should be put to rest by Thursday’s Fourth Circuit ruling, reaffirming long established Supreme Court precedent holding that state officials do not have the authority to serve as “roving constitutional watchdog[s].”
Reform Rodeo
1. Maggie Mahar at Health Beat discusses a new report published in the NEJM that supports the importance of the individual mandate in combating adverse selection.
2. At the Health Care Blog, Paul Levy writes sardonically about the accountability of accountable care organizations.
2a. On a less sardonic note, Chris Fleming gives an overview of Health Affairs’ special issue covering ACOs.
2b. Thomas Greaney writes in the NEJM about how the federal government’s can help ACOs navigate an already concentrated health care landscape.
3. The Hill reports on the essential items and services that health insurers will have to provide when offering their products in the new exchanges.
4. David Kibbe and Brian Klepper document the federal government’s initiatives in giving the HIT market a much needed shot-in-the-arm.
5. The Commonwealth Fund’s Melinda Abram’s discusses one of the most important facets of health care reform: how the ACA will bolster primary care.
Reform Rodeo
1. Medicaid Madness: Kaiser Health News details the debate over whether Medicaid recipients could purchase subsidized insurance on the ACA-mandated exchanges
2. On Republican Repeal: Ezra Klein discusses a piece by Peter Suderman of Reason Magazine that outlines the the dilemma that Republicans may face in their efforts to repeal the ACA.
3. Unemployment and Health Care: The Health Care Blog has a nice piece detailing the effect that rising unemployment could have on the the financial viability of hospitals.
4. Berwick Bashing: Donald Berwick will be testifying on Capital Hill this week. Politico spoke with members on the Hill about how they expect to grill Berwick.
5. Loko: Time Magazine has a piece on the FDA’s expected decision on whether to ban the highly alcoholic and caffeinated Four Loko drink that has been implicated in serious illness and death.
Update: Four Loko has decided to voluntarily remove caffeine from their alcoholic beverages.
Reform Rodeo
1. Useful Tools: The Commonwealth Fund has released a nice tool that provides a timeline of ACA, as well as a means by which to filter the provisions based on a number of criteria.
2. Misinformation: Maggie Mahar describes some of the misinformation that is coming out of the state of Texas regarding health care reform.
3. Exchange Obstacle: Timothy Jost provides a fantastic overview of the obstacles that states and federal governments will face in the process of implementing the exchanges under the ACA.
4. Preventive Care: Somewhat out of character, the Los Angeles Times runs a piece about the irrationality that has surrounded the Preventive Services Task Force and evidence-based medicine in general.
5. Pharma Initiatives: The New England Journal of Medicine provides an overview of the policy initiatives and incentive programs that govern market exclusivity of pharmaceuticals.
An Overview of Exchanges under the House and Senate Bill
Filed under: Private Insurance, Proposed Legislation, Public Plan
On January 8th, 2010, the Alliance for Health Reform and The Commonwealth Fund co-sponsored and moderated a panel discussion on the health insurance exchanges that are being proposed in both the House and the Senate health reform bills. The panel consisted of Washington and Lee professor Timothy Jost, John Kingsdale of the Massachusetts Commonwealth Health Insurance Connector Authority, and Philip Vogel of the Connecticut Business and Industry Association (CBIA), which runs the non-profit CBIA Health Connections, a health insurance exchange for the state of Connecticut.
The co-sponsors have uploaded all of the event’s materials, including a webcast of the entire event, as well as all of the powerpoint slides and papers. All of this information can be found here.
Professor Jost and the Commonwealth fund created detailed charts comparing the differences between the two bills. Below is a reproduction of Professor Jost’s chart, which can be viewed by clicking on the thumbnails.
Jost Chart Page 1, Click on Thumbnail to View
Jost Chart Page 2, Click on Thumbnail to View
Both the House and the Senate bills would create new health insurance exchanges that would help consumers and employers navigate the purchase of health insurance. Though the common thread of a regulated marketplace runs through both bills, all three panelists noted the stark difference in the vision and implementation of the exchanges under the respective bills.
Below are some of the key distinctions between the two bills.
The House Bill — Public Option with Opt-Out Possibility
The House’s bill, H.R. 3962 (click here for entire pdf) provides for a federal exchange that would essentially eliminate the individual marketplace for health insurance going forward. A public plan would be offered that would reimburse providers at negotiated rates between those of Medicare and commercial rates. The applicable section of the House’s bill is Title III, entitled Health Insurance Exchange and Related Provisions.
Title III of the House Bill would create the Health Choices Administration with a Commissioner who would oversee the exchange. Citing Section 301 and 308 of the Bill, Professor Jost notes on page 17 of his paper:
The exchange operates at the national level, established within a new Health Choices Administration. The Commissioner of the HCA can, however, permit individual states or groups of states to administer an exchange within their territory in place of the national exchange if specific requirements are met, subject to revocation if the state ceases to meet the requirements of the bill. Even if the HCA delegates exchange authority to a state, the Commissioner retains enforcement authority and can further specify functions retained by the Commissioner and not delegated.
Thus, the House’s bill would create an exchange system that is fairly centralized and regulated, but with added flexibility. If the states fail to implement their own exchange then HHS will implement an exchange for them. Only those policies considered “grandfathered” could be sold outside of the exchange, and such “grandfathering” can only occur in the individual market. (See Section 202). Insurance offered inside the exchange would fit into one of four tiers: basic, enhanced, premium, and premium plus. (See Section 303). These tiers would correspond to different actuarial values of the plans. Subsidies would be provided on a sliding scale that is determined by the purchaser’s income.
The House bill would also limit the medical loss ratio of plans offered in the exchanges to 85 percent, largely prohibit the rescission of contracts, eliminate lifetime coverage limits, eliminate pre-existing condition exclusions, as well as require guaranteed issue and renewal of plans. Variations in premiums based on the age of the insured could only vary by a maximum of 2:1.
Not all of the panelists agreed with every provision. For example, Mr. Vogel took issue with the dependence on the medical loss ratio in regulating the market, instead arguing for a greater reliance on the “claim dollar” as a guide post.
Whether offered inside the exchange or grandfathered, all plans must meet certain requirements in terms of essential benefits, which would be determined by HHS, and would be based on the recommendation of the Health Benefits Advisory Committee–a public/private hybrid entity.
- Click here to jump to section 223 outlining the Health Benefits Advisory Committee
These benefits would include hospitalization, outpatient care, prescriptions drugs, equipment, and a host of other benefits.
- Click here to jump to the section 222 which details the essential benefits.
The House bill would also impose rules regarding the transparency of the plans offered in the exchange by requiring certain information about the plans to be disclosed.
The Senate Approach — No Public Option; Multistate Substitute Would Exist
For whatever reason, the Senate crafted a more complicated framework of exchanges.
A crucial point of divergence from the House bill is the Senate bill’s lack of a federally financed public plan offered through the exchange. However, as discussed below, part of the Senate plan attempts to act as a substitute. Another area of divergence is that existing individual and group plans may continue alongside newly created exchanges, in addition to any grandfathered plans. This is in stark distinction to the House bill that would eliminate some existing policies. Though as noted, the House bill would allow for some grandfathering.
The Senate’s exchange framework is based on section 1001 of the bill which provides that HHS will, with the help of the National Association of Insurance Commissioners (NAIC), craft standards regarding the minimum benefits and other aspects of the plans sold through the various exchanges.
In terms of the Senate’s framework for exchanges, it is as follows. The Senate bill will allow for a number of exchanges that would exist on variety of different governmental levels. Whereas the House bill envisions a more federal exchange system, the Senate bill would instead allow for state-based exchanges, multistate exchanges (i.e. regional), or substate exchanges.
- Click here for a pdf version of Senate bill, as passed.
State-based Exchanges
For the individual and the small group markets, the Senate bill would require each state to create a American Health Benefit Exchange for individual purchasers of insurance, and a Small Business Health Options Program (SHOP) for small businesses purchasers. HHS would regulate these exchanges (See section 1321(a)(1)). These exchanges would be governed by regulations promulgated by HHS, unless the states adopt alternative standards that the HHS finds acceptable.
The state may combine the individual market exchanges with the small business (SHOP) exchanges. Additionally, states have the flexibility to establish regional exchanges or smaller subsidiary exchanges that target specific geographic areas within the state. (See Section 1311(f)). If the states do not create a system of either separate exchanges for individuals and small business, or some combination, HHS will establish an exchange or utilize a non-profit insurer to fill the void. See 1321(c).
The multistate exchanges are important, as they may mollify those who have been touting the idea of interstate health insurance offerings as a panacea for the woes of U.S. health insurance.
Regardless of how any states’ exchange(s) plays out, many of the important provisions of the Senate’s bill such as certain minimum benefits, the ban on lifetime or annual dollar limits, the ban on rescission, and medical loss ratio requirements would apply across the landscape of exchanges.
State Opt-Out Possible
Under the Senate bill, the states would be eligible in 2017 to opt-out of the federal requirements listed above if they can demonstrate that they are providing affordable coverage that is at least as affordable and comprehensive as the Bill requires. Alternatively, the state may be allowed to create a “public health plan” for those under 200% of the federal poverty level. Under this arrangement, the federal government would compensate the state for 95 percent of what would have been provided through premium tax credits as well as cost-sharing reduction payments. (See Section 1331).
Multistate plans: A Compromise?
One major amendment passed on December 24th was section 1334 which amended section 1333 which dealt with multistate exchanges. Under section 1334, The Office of Personnel Management (OPM)–the agency that governs the federal employees health benefit program (FEHB)–will enter into contracts with insurance carriers to offer at least 2 multistate plans through each exchange in each state. (See 1334(a)(1)). These plans will cover the individual and small group market. At least one of those plans must be a non-profit insurance plan, and must be in accordance with the general standards set forth for health insurance plans.
Though there would be a minimum level of benefits and protections required for all plans, the States would be entitled to offer multistate plans with more substantial benefits. However the state will have to defray the costs of the additional benefits.
Unlike the House bill which eliminates the state-based individual market, the Senate bill envisions exchanges that would co-exist with both the individual and small-group markets, and operate under the same rules. Though the Senate bill allows for flexibility, the subsidies provided by the federal government could only apply to insurance plans sold through the exchange.
One of the most important and controversial sections of the amended Senate bill is section 1334(a)(4), which specifies that, in administering the multistate plan, OPM will have the same bargaining power as they currently have for plans offered in the FEHB. Thus, OPM would be able to negotiate for a specified medical loss ratio and profit margin, as well as specified premium rates and any other terms in the “interest of the enrollees.” The goal is for these plans to be offered nationwide. Whether the OPM-run exchange will succeed is obviously yet to be determined, but some like Professor Timothy Jost are worried that the Senate’s plan to allow some plans to operate outside of the exchange complicates the federal government’s job in risk adjustment.
Reform Rodeo
Photo by David Monniaux
1. Big Pharma: The pharmaceutical industry is threatening to reverse their support of the health care reform legislation if the bill calls for a reduction in the number of years that a company’s biologics are protected from generics.
2. The Caddy Conundrum: NPR reports that organized labor appears to be on board with taxing Cadillac plans, with some movement in their favor regarding the thresholds triggering the tax.
3. Health Insurance Exchanges: The Commonwealth Fund and the Alliance for health reform moderated a discussion on health insurance exchanges. Fantastic materials that outline the House and Senate plans can be found at the bottom of this page, which includes the extraordinary paper which Professor Timothy Jost presented.
4. Health Reform Discussions: The Health Care Blog has rounded up many of the discussions on health care reform.
5. Play-or-Pay Problems: The NEJM has a thorough analysis of the “play-or-pay” provisions in health reform legislation, and the problems that may arise.
6. Multimedia: Atul Gawande chats with Charlie Rose on January 5th about health care, as well as Gawande’s new book “Checklist Manifesto”.
Convergence on Health Reform (Death of the Public Option)
Filed under: Health Care Economics, Proposed Legislation, Public Plan
Thomas (Tim) Greaney
Saint Louis University School of Law
So maybe the two parties are coming together on health reform after all. Last night we learned that after days of “secret talks” among the “gang of ten” the Democrats have reached agreement to restructure their health care proposal. The changes are significant:
- ditch the already-watered-down public option plan;
- create a new insurance exchange “option” for individuals and small groups consisting of a nonprofit plan as negotiated by the Office of Personnel Management;
- expand Medicare eligibility to cover uninsured individuals aged 55-64.
What does the Democrats’ “public option ultralight” compromise have in common with Republicans’ alternative universe? Well, consider the latter’s proposal to open interstate competition for all health insurers–a move they promise will immediately lower health care costs. Besides being shameless attempts to offer simple solutions to complex problems, the two proposals are guilty of the same fundamental misunderstanding of health insurance. Simply put, they both ignore a critical economic truth of health insurance today: insurers require a provider network of hospitals and doctors or must have market leverage in order to negotiate for lower provider prices and for controls on excessive volume.
How, then, would a nonprofit insurer not presently competing in one of the concentrated markets succeed in putting competitive pressure on the incumbents? As one insurance industry observer put it ,
So, Kaiser Permanente, which operates with highly organized and capital intensive networks in its markets, would now come into a state where it has no networks and offer a plan? Blue Cross of Nebraska might offer an individual and small group plan in Rhode Island? Tufts Health Plan out of Boston might offer a plan in Oregon?
Based upon what network of providers in those places where they do not now do business?
Likewise, in expanding Medicare, the Dems are taking a page out of the Republican playbook. For the last several weeks, Senate Republicans have been loudly touting the benefits of Medicare. By their lights, not only does the program produce unmatched (and untouchable) health care services in terms of quality of care and beneficiary satisfaction, but any cost-cutting constitutes a betrayal of our commitment to seniors. As far as one can tell, the expansion proposal will do just that: offer the now-sacrosanct program to a few million almost-seniors. As to the other 20 million citizens, forced to shop for insurance through an exchange flawed by inadequate competition and inadequate subsidies? Well, maybe the Democrats will borrow the rhetoric of Republican National Chairman Michael Steele: this is no time for a “government-run health-care experiment.”
Reform Rodeo
Photo by David Monniaux
1. Sen. Baucus, releases the Finance Committee’s public option-less, co-op-based draft bill that will be marked up later in the month (full draft in PDF here, Baucus’ interpretation of it in today’s WSJ op-ed) .
1(a). Ezra Klein opines about how “BaucusCare” should be improved, and in doing so provides a good overview of some of the draft’s key provisions.
2. The New York Times has a nice primer on one of the most discussed possibilities reforming health care: health insurance exchanges. It is definitely worth following the link the Times provides to the FEHB online comparison tool to see how easy it is for federal employees to shop for health insurance.
3. The Kaiser Family Foundation has released their annual report (summary in PDF format here, full report in PDF format here) the shows the changes in employer health benefits.
4. The Robert Wood Johnson Foundation summarizes a New England Journal of Medicine poll which finds that a majority of physicians support a public option.
5. The Health Care Blog has a nice run-down of HHS’s effort to retake control of EHR certification from CCHIT–and what the not-for-profit CCHIT is doing in response.
6. In Case You Missed It: Professor Nathan Cortez in The Health Care Blog on “Immigrants, Health Reform, & Lies” — originally posted here on HRW.
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