Monthly Archives: December 2014

The High Stakes of the House’s Lawsuit over Obamacare Subsidies

Most coverage of House Republicans’ lawsuit against the Obama administration has focused on the latter’s delay implementing Obamacare’s employer mandate. But five of the eight counts of the lawsuit focus on another issue–one that, depending on the outcome of the suit, could cause insurers to re-assess their involvement in the health-care exchanges.

The issue revolves around the law’s cost-sharing subsidies, a program I analyzed in a June blogpost. The administration had said it was combining the law’s premium subsidies and cost-sharing subsidies–which provide lower co-payments and deductibles to certain low-income individuals—into one set of payments to insurers. “The problem with this? That’s not what the law says,” I wrote, based on a previous analysis showing that the law structured the two types of subsidies very differently.

In my earlier post, I posited that the administration may have combined the two programs to exempt the cost-sharing subsidies from sequester budget cuts. But the House’s lawsuit alleges a more fundamental point: that lumping cost-sharing subsidies in with premium subsidies attempts to hide the fact that Congress never appropriated funds for the cost-sharing subsidies. In another June Think Tank post analyzing similar questions about Obamacare’s “risk corridor” program (under which plans with enrollees who are healthier than average pay into a pool that subsidizes plans whose enrollees are unhealthier than average), I noted the basic legal question about risk corridors, which also applies to the cost-sharing subsidies:

January memo from the Congressional Research Service … and manuals of appropriations law published by the Government Accountability Office provide the minute background, but the basic premise is simple: To spend money, Congress must pass legislation authorizing the executive to do X action and then also appropriate Y dollars for that purpose.

The House’s lawsuit alleges that Congress authorized but never appropriated funds for the cost-sharing subsidies, and it asks the court to block further payments to insurers under the subsidy program unless and until Congress specifically appropriates funds.

The potential impact on insurers and exchanges is enormous. The Congressional Research Service observed in May 2013 that, should the sequestration budget cuts apply to cost-sharing subsidies, “insurers presumably will still have to provide required coverage [i.e., reductions in co-payments and deductibles] to qualifying enrollees, but they will not receive the full subsidy to cover their increased costs.” If a court prohibits the administration from paying out the cost-sharing subsidies, the financial hit to insurers would be $175 billion over the next 10 years, according to Congressional Budget Office estimates of spending on the subsidies through 2024.

In October, it was reported that insurers had requested language from the administration for the second Affordable Care Act open-enrollment season that gives insurers the opportunity to stop offering plans, and cancel existing plans, in the 37 states with a federally run exchange should court cases–now scheduled to be heard by the Supreme Court in March–disrupt federal premium and cost-sharing subsidies to those states. The language also appears to allow insurers to take the same actions should a court halt the flow of cost-sharing subsidies as a result of the House lawsuit. If insurers end up facing an unfunded mandate–a requirement to provide reduced cost-sharing to low-income individuals but no federal subsidies to help finance those benefits–totaling tens of billions of dollars per year, it seems likely that many, if not most or all, insurers would seek to terminate their exchange offerings.

If King v. Burwell–the lawsuit the Supreme Court has agreed to hear about the legality of subsidies in federally run exchanges—represents an existential threat to Obamacare, the implications of the Boehner lawsuit come a close second. If a court blocks the health-care law’s cost-sharing subsidies, insurers facing an uncertain financial, legal and actuarial environment could opt out of the exchanges. The fact that insurers could pull out of the exchanges, and the possibility that the House lawsuit could trigger such an outcome, make the lawsuit worth watching.

This post was originally published at the Wall Street Journal’s Think Tank blog.

An Issue That Could Define Alternatives to Obamacare

A line buried in a Heritage Foundation policy paper issued just before the November elections hinted at a major fissure point in discussions surrounding a conservative alternative to Obamacare. The distinctions it raised could shape the form of any health-care alternatives the Republican-led Congress considers next year.

The policy brief, outlining the principles for any conservative health-care alternative, included the following lines:

Replacing the current tax treatment of health benefits with a new design for health care tax relief that is both revenue and budget neutral (based on pre-PPACA levels) is the first step in transforming the American health system into one that is more patient-centered, market-based, and value-focused.

The words in parentheses pack the most punch, for they lay down a clear marker regarding budgetary baselines—which define the parameters of many policy debates in Washington.

Consider a hypothetical alternative to Obamacare that repeals the law entirely, including its more than $1 trillion in tax increases, but then imposes new limits on the tax break for employer-provided health coverage—raising, say, $400 billion in revenue—to finance coverage expansions. Does that alternative cut taxes by $600 billion (the $1 trillion in repealed taxes, offset by the $400 billion in new revenue), or raise taxes by $400 billion, because repeal of the law should be seen as a given?

Polling data conducted for America Next earlier this year suggests that Americans believe the latter. A majority of voters (55%)—and sizable majorities of conservative voters—believe that “any replacement of Obamacare must repeal all of the Obamacare taxes and not just replace them with other taxes.”


Economists and policy experts on both the left and the right agree on the need to reform the tax treatment of health insurance. But there is less agreement on the means. For instance, in one of his now-infamous videos, MIT economist and Obamacare consultant Jonathan Gruber explained how provisions in Obamacare—sold as a tax on insurance companies—ultimately would raise tax burdens on the middle class. Some on the right have proposed that Congress accelerate this tax increase by amending the law next year. Other alternatives to the Affordable Care Act would repeal and replace the law’s tax increases, while still other alternatives (including the plan put forward by America Next) would repeal all of the law’s tax increases, and reform the tax code, without raising additional revenue in its stead.

To the casual observer, these baseline distinctions may seem arcane—but in Washington, they can pack a wallop. Expect the issues referenced in the Heritage brief to resurface whenever the new House and Senate consider health-care alternatives.

This post was originally published at the Wall Street Journal’s Think Tank blog.