The Health Insurance Donut Hole 3.0

August 12, 2012 by · 1 Comment
Filed under: Health Law 

800px-munkinpaistoProfessor John Jacobi has informed us well regarding the donut hole to be created for the uninsured who would have been eligible for Medicaid under the ACA expansion of Medicaid in states that choose not to sign on to expanded Medicaid, but apparently there’s another level of donut hole awaiting low- and middle-income Americans potentially ineligible for tax credits and government subsidies for procurement of health insurance. This donut hole revolves around the definition of “affordable,” and Robert Pear in The New York Times does a more than able job of explaining it under the meaning of the word as promulgated by the I.R.S.:

Under the law, most Americans will be required to have health insurance starting in 2014. Low- and middle-income people can get tax credits and other subsidies to help pay their premiums, unless they have access to affordable coverage from an employer.

The law specifies that employer-sponsored insurance is not affordable if a worker’s share of the premium is more than 9.5 percent of the worker’s household income. The I.R.S. says this calculation should be based solely on the cost of individual coverage for the employee, what the worker would pay for “self-only coverage.”

Critics say the administration should also take account of the costs of covering a spouse and children because family coverage typically costs much more.

In 2011, according to an annual survey by the Kaiser Family Foundation, premiums for employer-sponsored health insurance averaged $5,430 a year for single coverage and $15,070 for family coverage. The employee’s share of the premium averaged $920 for individual coverage and more than four times as much, $4,130, for family coverage.

Under the I.R.S. proposal, such costs would be deemed affordable for a family making $35,000 a year, even though the family would have to spend 12 percent of its income for full coverage under the employer’s plan.

Which means, of course, that although health insurance could be deemed “affordable” for an employee– thus making that employee ineligible for tax credits and subsidies– his or her family coverage could amount to a very large portion of income, but still remain ineligible for tax credits and subsidies. I would suggest that it is these kinds of financial dilemmas in cash strapped families that have led so many to eschew health insurance in the past.

Perhaps just as interesting though is that the determination is based on “household income.” In families with children in which one parent works full time and the other works part time, it is not hard to envision a scenario in which the supplemental income of the part time earner serves to increase the household income just enough to make the cost of health insurance for the individual full time employee less than 9.5% of household income–creating a classic disincentive to work among families in dire need of income.

Photo by Muu-karhu
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New Medicaid Donut Hole: Update

July 12, 2012 by · Leave a Comment
Filed under: Medicaid, State Initiatives 

jacobi_john1I recently wrote about the plight of poor adults in states that reject “Medicaid 2.0″ — that is, the expansions of Medicaid contained in the ACA.  Just to recap, the Supreme Court upheld the constitutionality of the expansions, but held that Medicaid’s historical power to enforce state uniformity — sanctioning states up to and including the withdrawal of some or all of their federal funding — could not be used to require states to adopt the ACA expansions.  Thus, Medicaid was conceptually split between Medicaid 1.0 (existing Medicaid) and Medicaid 2.0 (ACA expansion Medicaid), and a state could not lose Medicaid 1.0 funding if it declined to participate in Medicaid 2.0 funding.   Several governors have expressed the intent to refuse to participate in Medicaid 2.0.

My previous post highlighted Kevin Outterson’s observation of an under-appreciated effect of a state’s refusal to participate in Medicaid 2.0.  Of course, people living below the poverty level who were ineligible for Medicaid 1.0 will be shut out of Medicaid in refusing states.  But they’re also ineligible for any subsidies to purchase coverage under the exchanges.  Why?  Because Congress assumed that states would participate in Medicaid 2.0, and didn’t provide seemingly redundant subsidies.  These poor residents of refusing states will fall into a Medicaid donut hole — ineligible for Medicaid, but shut out of exchange-based subsidies.

Secretary Sebelius, in a letter dated July 10, implicitly acknowledged this problem.  After reiterating previous offers to work with states flexibly in health reform matters, and expressing hope that states would take up the federal funds available for Medicaid expansion, she addressed a donut hole question: would poor residents in refusing states be subject to a triple whammy of (1) no access to Medicaid; (2) no access to subsidies for coverage through the exchanges; and (3) penalties for not having qualifying coverage?  Sebelius couldn’t offer much on the first two — refusing states won’t offer Medicaid coverage to many of their poor residents who would be eligible for Medicaid 2.0, and subsidies are simply not available (for reasons I explained in my previous post) for persons living below poverty.  But on the third, she promised that the very poor uninsured would at least escape sanction for noncompliance with the ACA’s individual responsibility provision: Sebelius assured the governors that she would use her authority to provide a “hardship exemption” from penalties for these uninsured folks where needed.   That may be snow in January for these disenfranchised folks, but those seem to be the tools left to Sebelius.

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A Weak Mandate That’s Strong Enough?

July 2, 2012 by · Leave a Comment
Filed under: Health Law, Health Reform 

kate-greenwood_high-res-2011-compIn Chief Justice John Roberts’ decision in National Federation of Independent Business v. Sebelius, he explains that, in arguing that the individual mandate should be “upheld as within Congress’s enumerated power to “lay and collect Taxes[,]” the Government did not claim that the taxing power allows it to mandate that individuals purchase insurance.  Rather, the Chief Justice explains, the Government contended that “the mandate is not a legal command to buy insurance.”  Under this argument, “going without insurance [is] just another thing the Government taxes, like buying gasoline or earn­ing income.”

As Nathan Cortez highlighted, Chief Justice Roberts’ conclusion that the “shared re­sponsibility payment” that individuals who do not secure health insurance will owe is a tax hinged in part on the fact that “for most Americans the amount due will be far less than the price of insur­ance, and, by statute, it can never be more.”  The Chief Justice emphasized that “[i]t may often be a reasonable financial decision to make the payment rather than purchase insurance…”  The shared responsibility payment is more tax than penalty because it lacks a scienter requirement and because it “is collected solely by the IRS through the normal means of taxation–except that the Service is not allowed to use those means most sugges­tive of a punitive sanction, such as criminal prosecution.”

That “[t]he individual mandate survives as a tax” is for sure a victory for those who support the Patient Protection and Affordable Care Act.  Yet, as Dave Hoffman points out here, victory in a broader sense will hinge on the Act’s success.  And the very fact that the individual mandate is weak enough to be characterized, fairly, as not a mandate at all, raises the spectre of, as Professor Hoffman puts it, “disastrously bad adverse selection problems, coupled with a talking point (taxes & costs going up) to hammer liberals with for the next decade.”

The possibility that relatively healthy individuals and small employers with relatively healthy employees will opt out of purchasing health insurance — at all or through the Act’s health insurance exchanges — causing health insurance premiums to rise, the market to contract, and the exchanges to be destabilized is not a new concern.  In March of this year, for example, Avik Roy argued at his blog at Forbes that “[b]ecause the mandate is weakly enforced, small in size, and gradually put into place, whereas the pre-existing condition mandate takes effect immediately, Obamacare creates the recipe for an adverse selection death spiral.”  Now that the Supreme Court has upheld the Act, these concerns will take on a new urgency for federal and state regulators, insurers, and others.

In fact, just hours after the Court handed down its decision, John Reichard and Rebecca Adams at CQ HealthBeat were reporting that Cigna is planning a lobbying campaign with the goal of convincing lawmakers to strengthen the mandate.  Reichard and Adams report that

“Cigna also plans to lobby state governors, state legislatures, the Obama administration and Congress to require waiting periods of up to six months if a health care plan enrollee decides to drop out of a plan and then decides he or she wants to get back in, said Tom Richards, president of Cigna’s individual and family plan division. Efforts in Congress likely won’t occur until next year, he said.

In other words, a person who dropped out of a plan could come back into it during the next open enrollment period but would have to wait for some specified period — perhaps six months — before they would be covered for a pre-existing medical condition. That would keep people from dropping coverage and then re-enrolling quickly if they got sick so they could be covered for that illness.”

Reichard and Adams quote Ron Pollack, the Executive Director of Families USA, who noted that instead of or in addition to pre-existing condition waiting periods, those who wait to purchase health insurance could be charged a higher rate, as is the case with Medicare Part B.

The individual mandate is not the only arrow in the Affordable Care Act’s quiver, however, and it remains to be seen whether these additional measures are necessary.  The Act’s premium subsidies, for example, will provide a strong incentive to individuals to participate in the health insurance market.  The “3 Rs” — the reinsurance, risk corridor, and risk adjustment programs — are also important, as they are designed to, as Timothy Jost explains here, ease the transition to the exchanges and to a market without medical underwriting and with premium tax credits.  The final “R,” risk adjustment, will provide a mechanism to reduce problematic concentration of risk in the exchanges on an ongoing basis.

“The reinsurance program will [ease the transition] by collecting assessments from insured and self-insured group health plans and paying out funds to individual plans that cover high-risk individuals. The risk corridor program will collect funds from issuers of qualified health plans (primarily but not exclusively plans in the exchanges) that have lower-than-expected claims costs and pay out those funds to issuers of qualified health plans with higher-than-expected costs. It will thus stabilize the experience of these plans over the first three years when insurers will have a difficult time predicting exactly how to set their premiums.

Finally, the third ‘R’ program, risk adjustment, will on a permanent basis move funds from issuers in the nongroup and small group market (other than grandfathered plans) with lower-than-average-risk populations to those with higher-risk populations; this will discourage risk selection and compensate insurers that cover sicker enrollees.”

If the 3 Rs, and, in particular, the risk adjustment program, work as intended, a weak individual mandate may be strong enough.

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The Umpire Throws a Curveball

June 29, 2012 by · Leave a Comment
Filed under: Health Law, Health Reform 

cortezDuring his Senate confirmation hearings, John Roberts famously said that he would “call balls and strikes,” and not “pitch or bat.” It was a memorable promise of judicial modesty, but one that sometimes rang hollow after decisions like Citizens United. On Thursday, in a remarkable opinion that surprised almost everyone, Chief Justice Roberts joined the four liberal justices to uphold the individual mandate as a constitutional tax. Was this the modest umpire he promised us? Did he break ranks to preserve the Court’s reputation? (Note, Justices Breyer and Kagan also broke ranks on the Medicaid expansion question.) Was this Marburian or Machiavellian?

Either way, the Court’s opinions are full of curveballs. So I’d like to add to the chorus (cacophony?) of law professor post-game analysis and try to make sense of some of the fault lines and themes.

Death and taxes: The mandate as a tax snuck up on most of us. My favorite internet meme from yesterday was Admiral Ackbar’s warning: “It’s a tax!” Judge Posner on Slate.com astutely observed that legislators rarely call revenue provisions or anything else “taxes” anymore, because it has become a dirty word. President Obama still refused to say “tax” when addressing the Court’s decision. (Admiral Ackbar is not a cabinet member.) The Roberts majority held that the mandate was not a tax under the Anti-Injunction Act, but was a tax for constitutional purposes. The label Congress gave to the mandate (calling it a “penalty” rather than a “tax” in the Affordable Care Act) was helpful to the former but not the latter. Tax scholars, good luck with this one.

Inactivity: As many of us predicted, the Commerce Clause argument would rise or fall based on whether Kennedy Roberts bought into the action/inaction distinction, something that well-respected conservative jurists like Judge Silberman and Judge Sutton didn’t. In fact, Roberts bought the Congress-is-creating-not-regulating-commerce argument whole cloth (pp. 18-23). He and the conservative justices wrote about the uninsured like they exist in some sort of Precambrian pre-commerce period where they face zero risk of getting sick or injured and don’t free ride on the rest of us.

Justice Ginsburg’s opinion could not have been better on this point–her opinion is a realist tour de force on how health insurance really works. In the real world. She doesn’t bother with silly analogies. She even identifies some limiting principles: the free rider problem is significantly worse in health insurance than in other markets; the free rider problem is directly related to interstate commerce, and is not at all attenuated; there’s no problem with proximity. She obliterates the broccoli analogy (pp. 28-29 of her dissent). So much so that she even quotes Robert Bork (“Judges and lawyers live on the slippery slope of analogies; they are not supposed to ski to the bottom.”). It would take a remarkable (and probably imaginary) string of events and causal links for Congress to ever justify a vegetable mandate (luckily, my wife and I are not constrained by the Commerce Clause at home with our children).

What disappoints me about the joint dissent (by Alito, Kennedy, Scalia, and Thomas) is that it doesn’t seem to appreciate why health insurance is a unique problem of unique scale that requires unique solutions like mandates. How do you pretend that the uninsured are pre-commerce? How do you pretend a $2.5 trillion industry doesn’t exist? (Roberts at pp. 18-19). Is health care like Kaiser Soze? The uninsured cost each insured family about $1,000 per year in additional premiums. The uninsured consume $100 billion in health care each year. Over 60% of the uninsured visit a doctor or the ER every year. If this is what Precambrian pre-commerce looks like, it would be like single-celled creatures riding motorcycles and talking on cell phones. Luckily for the humans impacted by the Affordable Care Act, inaction shields us only from the Commerce Clause, not the Tax Clause. (Roberts, at p. 41).

Congress can create choices, but not coerce: It struck me that both the mandate and Medicaid expansion essentially boiled down to whether Congress is forcing individuals and states to do something or merely giving them choices. First, the mandate survived as a tax rather than a penalty because Roberts found that the amounts charged in section 5000A for going uninsured (the “shared responsibility payment”) were proportionate and weren’t coercive. On page 35 of his opinion, he notes that “for most Americans the amount due will be far less than the price of insurance, and by statute, it can never be more.” In footnote 8, he then notes that someone making $35,000 a year in 2016 would owe the IRS only $60 per month for going uninsured, which is less than the $400 a month it would cost to buy insurance. That’s a real choice and it’s not coercive. That little passage may have saved the entire Affordable Care Act, characterizing the mandate as a tax and not a penalty.

Likewise, Medicaid expansion boils down to the same issue– Is Congress coercing states and thus abusing its spending power, or do states have a real choice? The threat to withhold all Medicaid funding if states don’t expand along with the Affordable Care Act is coercive; but withholding new funds and preserving existing federal Medicaid funding isn’t– it’s “a genuine choice.” (Roberts, at p. 58). In the coming weeks, I look forward to discussing with colleagues what this means for all the joint federal-state programs we have. Does it mean Congress can giveth but not taketh away? Will this decision open the floodgates to litigation challenging federal spending conditions? Will Congress, as Justice Ginsburg argues, avoid amending these sprawling statutes and instead decide to repeal and reenact huge programs like Medicaid to avoid this issue? (Ginsburg, at p. 38) For my money, the conditional spending decision will affect many more ongoing and future laws than the Commerce Clause holding.

Weak dissent: Finally, Judge Posner also remarked on the surprisingly weak joint dissent by the conservative justices, which also struck me when I read it. We didn’t get Scalia’s customary fire-breathing screed. Indeed, Justice Ginsburg’s opinion reads like a genuine dissent, which might be a sign that Roberts changed his vote, as many are speculating.

In any case, the 193-page document will give law nerds like me a lot to chew on in the coming weeks, months, and years. The umpire certainly threw us a few curveballs.

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ACA Upheld as Tax

June 28, 2012 by · Leave a Comment
Filed under: Health Law, Health Reform 

frank-pasquale-cropped-dsc_6024-32

1) A good rundown of “what it means for you” is here.

2) A critical part of the Roberts opinion:

The Federal Government does not have the power to order people to buy health insurance. Section 5000A would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose atax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as a tax.

n. 11: Of course, individuals do not have a lawful choice not to pay a tax due, and may sometimes face prosecution for failing to do so (although not for declining to make the shared responsibility payment, see 26 U. S. C. §5000A(g)(2)). But that does not show that the tax restricts the lawful choice whether to undertake or forgo the activity on which the taxis predicated. Those subject to the individual mandate may lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing they may not lawfully do is not buy health insurance and not pay the resulting tax.

3) Sara Rosenbaum of GW predicts “overwhelming number of states” to adopt the Medicaid expansion.

Also, Congrats to Jack Balkin for authoring “The Health-Care Mandate Is Clearly a Tax–and Therefore Constitutional,” back in May. From his lips to Justice Roberts’s ears.

I would also like to congratulate “individuals exposed to asbestos from a mine in Libby, Montana,” for keeping the Medicare coverage PPACA granted them. The joint dissent would have stripped that away, along with other parts of the Act they deem “minor provisions,” in a blanket repeal of PPACA they would characterize as “caution” and “minimalism.” I’m sure the tens of millions of Americans who will now enjoy insurance define “caution” quite differently.

Finally, a tip of the hat to Tim Jost, who has carefully and comprehensively blogged about key steps toward PPACA implementation, even with the “constitution in exile’s” Sword of Damocles hanging over it. If you want to learn more about the “Premium Tax Credit Final Rule,” essential health benefits, or minimum loss ratios, he’s the go-to person.

This post originally appeared, variously,  on Balkinization and on Concurring Opinions.

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