WASHINGTON, April 16 – Today the Competitive Enterprise Institute (CEI) released a report by finance expert Scot Vorse that shows many states knew as early as 2011 that they might not receive tax credits if they opted out of establishing a state-based health insurance exchange. Whether nonparticipating states had adequate knowledge that they were putting their Obamacare subsidies at risk is a critical question in CEI’s Supreme Court case, King v. Burwell.
Vorse obtained emails related to a January 2012 letter sent by seven states to the U.S. Department of Health and Human Services (HHS). While Obamacare supporters have dismissed this letter as a “spoof,” these state emails show the letter was a carefully crafted and coordinated effort by the states to get detailed information about the exchanges from HHS.

“Notably, the states explicitly asked HHS to explain what authority it had to administer tax credits on federally established exchanges,” Vorse writes.

The letter was signed by insurance and health officials from Kentucky, Maine, New Mexico, North Dakota, Tennessee, Utah and Virginia. In addition, the emails indicate several other states supported the letter. Even though HHS never responded, five of the state signatories chose not to set up state-based insurance exchanges. Virginia’s signature is especially noteworthy, because it contradicts the Supreme Court amicus brief that Virginia later signed in support of the government’s position in King.

Early this summer the Supreme Court will render a decision on King v. Burwell, the case challenging the IRS workaround that allows ObamaCare subsidies to be paid through federal exchanges. Many on the right believe that if the justices rule against the administration, it would be the final stake in the heart of ObamaCare. Nothing could be further from the truth.

Millions of Americans would lose their federal subsidies and therefore be unable to pay for expensive ObamaCare coverage. In that case we can expect President Obama to declare immediately a crisis that can only be fixed by more government. As Rahm Emanuel, the president’s former chief of staff, once said, you never want a serious crisis to go to waste.

If the court rules against him, President Obama’s response will be diabolically simple and highly effective. He will ask Congress to pass a one-sentence bill allowing the subsidies to flow through federal exchanges. At the same time he will offer governors a contract to convert their federal exchanges into state exchanges with a simple stroke of a pen.

Earlier this year the U.S. Supreme Court heard arguments in King v. Burwell, a case critical to the future of the Affordable Care Act (ACA, or so-called Obamacare). Readers interested in the details of the case should find them elsewhere. Suffice it to say here that the case concerns whether individuals can receive tax credits for buying health insurance on exchanges established by the federal government, though the text of the ACA indicates such subsidies are provided for those buying coverage through an “exchange established by the State.”

The case has the potential to invalidate substantial subsidies now being provided by federal taxpayers to millions of Americans using federal exchanges in 37 different states. Given the uncertainty created by the pending case, legislators on both sides of the aisle are considering how to react to various possible scenarios arising from a court decision. The House and Senate each recently passed budget resolutions allowing budget targets to be revised in the event of subsequent legislation modifying the ACA. The Senate resolution specifies that such legislation must be deficit-neutral.

It’s spring in Washington, and time to resume one of the capital’s favorite sports. No, not baseball, but throwing mud at the Supreme Court. Pending cases include the legal status of same-sex marriage and whether the IRS can provide billions of dollars in Obamacare subsidies without explicit congressional authorization. Partisans have launched a preemptive bid to undermine the legitimacy of the forthcoming decisions by accusing the court of “activism” for involving itself at all.

These increasingly transparent attempts to discredit the court should be rejected.Every case involving plausible abuses of power requires judicial engagement — conscientious, impartial truth-seeking, grounded in evidence — rather than reflexive deference to the political branches.

Take the Obamacare case. At issue in King v. Burwell is a section of the Affordable Care Act concerning tax credits for buying health insurance from government-operated healthcare exchanges. Congress wanted states to set up their own exchanges, but it lacks constitutional authority to force them. So Congress opted for a stick-and-carrot approach, authorizing tax credits for insurance policies purchased “through an Exchange established by the State.” As a backup, the ACA directed federal bureaucrats to set up federally operated exchanges in states that declined to set up their own.

Heather Higgins: The thing that I do that spends actually most of my time and is not something that is terribly sexy for donors, but that I think is hugely important is work on Obamacare. That’s kind of how I backed into the political stuff. I had been very involved in 2009 in trying to help fund and orchestrate and message the entire battle against Obamacare because there was no infrastructure on the right that was really set up to do that. And then coming out of that had the epiphany that since Reid and Pelosi were not moving, maybe the way to do that was to go into the Massachusetts race for Ted Kennedy’s seat, that special election which was being run on the issues that had polled well in September, which were the national security issue and the economy, and instead redefine the race as being about healthcare and the 41st vote, which every political consultant I took that to thought that I was on drugs and that that was a waste of money. So we wound up being the only independent expenditure in Scott Brown’s first race to make it be about healthcare and the 41st vote. [Applause.] Thank you.

And then in the summer of 2010 I was appalled that nobody was talking about Obamacare so we created the Repeal Pledge which is actually the only pledge about Obamacare that still exists of the ones that were started then; and coming out of the 2010 election where we had used it, I looked for the group to join to think strategically about not working at cross purposes between what the Senate might do, the House might do, the court case from Florida that was then rising up to the Supreme Court, what outside grassroots group could do, and there was none. So I’ve started something called the Repeal Coalition which meets every 3 to 4 weeks in the Capitol. It has leadership staff from both the House and the Senate. It has a lot of staff from different Members and Senators. It has a lot of outside groups that are policy wonks to grassroots groups, and we talk about all the things we wish that would get done that don’t get done, and we talk about things that sound like good ideas and figure out if they’re dumb ideas and try and prevent dumb things happening. There is an overriding purpose to this which is remembering, of course, the long-term goal.

During the recent oral argument in King v. Burwell — the Supreme Court case deciding if providing subsidies to buy health insurance in the 36 states utilizing federal health care exchanges is allowed under the Affordable Care Act (ACA) — Justice Kennedy suggested that disallowing subsidies might be unconstitutionally coercive because “states are being told either create your own exchange, or we’ll send your insurance market into a death spiral.” Are “death spirals” real, or just a way to frighten the public?

The death spiral will purportedly happen like this: disallowing federal exchange subsidies will make insurance less affordable for the 87% of federal exchange enrollees currently receiving subsidies. These people will no longer be required to buy insurance since the ACA’s individual mandate only applies to individuals who have access to affordable insurance. Since the ACA imposes community rating, requiring roughly the same premium for all individuals in a given plan with only small adjustments for their risk characteristics, and guaranteed issue of insurance regardless of the enrollee’s health, the old and unhealthy will continue to buy coverage but the young and healthy will forego coverage. The resulting higher risk pool of enrollees will increase the average cost of individuals remaining in the non-group insurance market, both on and off the exchanges, resulting in increased premiums that will drive out more low cost, healthy patients eventually destroying the market.

Two economic simulations predict that “adverse selection,” where healthier people leave the insurance market and sicker people stay in causing premiums to rise, will occur if the King plaintiffs prevail. The Urban Institute predicted discontinuing federal exchange subsidies would result in premium increases of 35% and enrollment declines of 69% in the individual health insurance market. The Rand Corporation made similar predictions.

But it is hard to reconcile these forecasts with studies of earlier state insurance market “reforms” that created market conditions similar to those that would result if federal exchange subsidies are disallowed. These studies suggest adverse selection would be minimal and would not lead to a “death spiral,” that is, it would not lead to a self-reinforcing cycle of adverse selection in which each time premiums rise, more people exit, leading to a sicker, more expensive risk pool and market collapse.

On Monday, the Supreme Court denied certiorari in Coons v. Lew, a constitutional challenge to provisions in the Affordable Care Act (ACA) creating the Independent Payment Advisory Board (IPAB), an independent federal agency charged with responsibility for controlling the growth of health-care costs by constraining the growth of Medicare.

IPAB is controversial, and potentially unconstitutional (as even fervent ACA advocates admit). Nonetheless, the denial of certiorari was to be expected. IPAB is not yet operational, so (as the U.S. Court of Appeals for the Ninth Circuit concluded) a challenge of this sort isn’t ripe. If and when the IPAB is up and running — and begins making changes to Medicare that affect providers or beneficiaries — there will be ample time to consider the constitutionality of Congress’s creation.

Alternatively, Congress could repeal or reform IPAB itself, as some have suggested. Given that the text of the ACA expressly limits Congress’s ability to amend these portions of the law, such legislative action could itself prompt litigation and perhaps even High Court review.

The Court’s denial of certiorari in the Coons case does not mean the justices won’t revisit the ACA next term. Another cert petition is pending in Mayhew v. Burwell, Maine’s challenge to the constitutionality of the ACA’s maintenance of eligibility requirements for Medicaid. According to Maine (and supporting amici), the federal government’s threat to withhold all Medicaid funding should Maine restrict Medicaid eligibility below pre-existing levels is unconstitutionally coercive and violates the Medicaid holding of NFIB v. Sebelius.

If, as oral argument in King v. Burwell suggested, some of the justices are interested in revisiting federalism concerns about the ACA, Mayhew is a potential vehicle. Indeed, although the U.S. Court of Appeals for the First Circuit found Maine’s arguments unconvincing, Maine’s position would get a boost should the the federal government prevail in King on federalism grounds.

Kevin Pace is a jazz musician who teaches music appreciation in Northern Virginia. When the IRS announced it would impose the Affordable Care Act’s employer mandate here in the Old Dominion, Pace’s employer cut hours for part-time professors in order to avoid steep penalties. Pace lost $8,000 in income. That would be bad enough if the penalties the IRS is now imposing on Virginia employers were legal. Yet two federal courts have held they are not.

In King v. Burwell, four Virginia taxpayers are challenging the IRS’s decision to impose Obamacare’s major taxing and spending provisions in states that refused to establish a health-insurance “exchange.” As provided in the Affordable Care Act, the federal government established fallback exchanges (HealthCare.gov) in those states.

But the act authorizes premium subsidies — and certain taxes that those subsidies trigger — only “through an Exchange established by the State.” In spite of that clear statutory requirement, the IRS is issuing premium subsidies and imposing those taxes in 34 states, including Virginia, that did not establish exchanges. The King challengers allege the IRS is subjecting them, Kevin Pace and 57 million other Americans to illegal taxes in the form of Obamacare’s individual and employer mandates. The Supreme Court heard oral arguments earlier this month, and will likely rule by June.

Times-Dispatch columnist A. Barton Hinkle’s “The case against Obamacare is looking weaker,” March 23 — is skeptical of the challengers’ claim that Congress intended to authorize the disputed taxes and spending only in states that established exchanges. I used to share his skepticism. I no longer do.

When the Supreme Court drops its big ObamaCare ruling this summer, Republican leaders say they will be fully ready to step in — even if it won’t be the party’s official replacement plan.

“We have to be prepared, by the time the ruling comes, to have something. Not months later,” House Ways and Means Committee Chairman Paul Ryan (R-Wis.) told reporters this week.

Ryan said he plans to have a bill ready — and priced by the Congressional Budget Office — by late June when a ruling for King v. Burwell is expected. The GOP-backed case, which threatens to erase people’s subsidies in about three-quarters of states, has tremendously high stakes.
“There are going to be 37 states immediately impacted, or presumably impacted, and that’s something that deserves an immediate response,” Ryan told reporters.

He declined to provide details about the plan that he and other GOP chairmen are drafting, but said it would offer “freedom” and “more choices” for any ObamaCare customers who loses their subsidies. Until the ruling, he said King v. Burwell will be one of his top three agenda items.

Anticipating the upcoming Supreme Court decision on King v. Burwell, which could halt health insurance subsidies available through the federal exchange, Republican Senators Richard Burr and Orrin Hatch joined with Representative Fred Upton to propose a comprehensive replacement for the Affordable Care Act (ACA). The Patient Choice, Affordability, Responsibility, and Empowerment Act, or Patient CARE Act, is modeled on a proposal of the same name offered last year by Senators Burr, Hatch, and Tom Coburn, who has retired from the Senate. The Burr-Hatch-Upton plan, like its predecessor, adopts consumer-based reforms of the insurance market, modernizes the Medicaid program, and makes other changes intended to lower cost and increase choices.

In an earlier post, we described in detail the provisions of the Burr-Coburn-Hatch bill. In this post, we discuss how the Burr-Hatch-Upton plan differs from the earlier proposal. We also discuss the impact of the new proposal on health insurance coverage, premiums, and the federal budget based on a new analysis from the Center for Health and Economy (H&E), a non-partisan think tank focused on producing informative analyses of trends in U.S. health care policy and reform ideas. We conclude by commenting on the direction Republicans are likely to take in reforming the health system in the aftermath of a Supreme Court decision in the King v. Burwell case.