The Affordable Care Act: King v. Burwell Overview and Potential Effects Doug Anderson, Esq. Bailey...

The Affordable Care Act: King v. BurwellOverview and Potential Effects

Doug Anderson, Esq. Bailey Cavalieri LLC 10 West Broad Street, Suite 2100 Columbus, OH 43215-3422 Direct: 614.229.3301 Cell: 614.264-2773 [email protected] www.baileycavalieri.com

Affordable Care Act Insurance Market Reforms

The key insurance market reforms:

1.Guaranteed issuance of comprehensive benefits with rating restrictions

2.Personal responsibility to buy coverage

3.Low income subsidies to make coverage affordable

4.Exchanges

Affordable Care ActExchanges

Statutory Requirement to Establish Exchanges

“Each state shall, not later than January 1, 2014, establish an American Health Benefit Exchange . . . for the State. . . .”

If a State does not elect to establish an Exchange, then HHS “shall establish and operate such Exchange within the State. . . “

42 U.S.C. 18031, 18041(c).

Affordable Care ActExchanges

•16 States and the District of Columbia established State operated Exchanges

•34 States chose not to establish an Exchange, including Ohio, and defaulted to the federally-facilitated Exchange

Affordable Care ActIndividual Mandate

Most citizens must obtain "minimum essential" coverage or pay a tax penalty.

If the required contribution towards coverage exceeds 8% of projected household income, the individual is not subject to the individual mandate penalty.

26 USC 5000A.

Affordable Care ActLow Income Subsidies

Federal law provides for premium tax credits (aka, low income subsidies) for people between 100 and 400% of FPL.

26 U.S.C. 36B.


The statutory tax credit language:

The "premium assistance credit amount" is the sum of the monthly premium assistance amounts for "all coverage months of the taxpayer occurring during the taxable year.“

26 USC 36B(b)(1).


The statutory tax credit language:

A "coverage month" is one in which the taxpayer is covered by a qualified health plan “that was enrolled in through an Exchange established by the State under section 1131 of the ACA.“

26 USC 36B(c)(2)(a)(i).


IRS tax credit regulations:

The IRS adopted regulations making the tax credits available to qualifying individuals who enroll in coverage in any exchange, including state-run and federally-facilitated Exchanges.

26 CFR 1.36B-1(k).


IRS tax credit regulations:

“Exchange” is defined to include any Exchange "regardless of whether the Exchange is established and operated by a State . . . or by HHS."

26 CFR 1.36B-1(k); 45 CFR 155.20.


During the rulemaking process, the IRS received the following public comments:

Commentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges.

77 Fed. Reg. 30378.


The IRS response was as follows:

The statutory language of . . . [the Affordable Care Act] support the interpretation that credits are available to taxpayers who obtain coverage through . . . the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges.

77 Fed. Reg. 30378.


In 2014, tax credits were granted to qualifying taxpayer who enrolled in coverage in any state or federal Exchange.


Source: ASPE computation of CMS data for 37 states using the HealthCare.gov platform as of 2‑15‑15 (including SEP activity through 2‑22‑15).

Reduction in Average Monthly Premiums from Advance Premium Tax Credits (APTC)

Description

Number of Individuals

Selecting 2015 Plans Through the

Federal Marketplace

Percent of Plan

Selections with APTC

Average Monthly Premium

before APTC

Average Monthly APTC

Average Monthly Premium

after APTC

Average Percent

Reduction in Premium

after APTC

All States using Heathcare.govPlatform 8.84 million 87% $364 $263 $101 72%



Availability and Selection of Plans With Monthly Premiums of $100 or Less After the Advance Premium Tax Credit (APTC)

DescriptionNumber of Individuals With

2015 Plan Selections Through the Marketplaces

Could Have Selected a Plan with a Monthly Premium of

$50 or Less after APTC

Could Have Selected a Plan with a Monthly Premium of

$100 or Less after APTC

Total Number of Individuals With 2015 Plan Selections

8.84 million 66% 77%

Individuals With 2015 Plan Selections With APTC 7.65 million 77% 89%



Total Marketplace Eligibility Determinations inStates using the Federal Exchange 2015

State NameTotal Eligible to Enroll in a

Marketplace Plan

Eligible to Enroll in a Marketplace Plan with Financial Assistance

Ohio 279,722 (100%) 229,459 (82%)


Marketplace Plan Selections by Financial Assistance Status in States Using the Federal Exchange

DescriptionTotal Number of Individuals With

2015 Plan Selections

With Financial

Assistance

Without Financial

Assistance

With APTC(non-add)

With CSR(non-add)

Ohio 234,341 84% 16% 84% 44%

All States using Federal Exchange

8,838,291 87% 13% 87% 60%

King v. Burwell

Plaintiffs are Virginia residents. Virginia has a federally facilitated exchange. Without a tax credit, plaintiffs would be exempt from

the individual mandate penalty because coverage would not be affordable.

With the premium tax credit, coverage is affordable, subjecting the plaintiffs to the penalty.

King v. Burwell

Plaintiffs filed suit in federal court claiming: the IRS rule is invalid. the IRS exceeded its authority and acted contrary to the law.the plain language of the ACA limits the tax credits to exchanges “established by the State under 1311 of [the ACA]”.

King v. Burwell

A "coverage month" is one in which the taxpayer is covered by a qualified health plan “that was enrolled in through an Exchange established by the State under section 1131 of [the ACA].“

26 USC 36b(c)(2)(a)(i).

King v. Burwell

The Government argued:

Under the ACA, tax credits work in concert with the market reforms and coverage mandate to achieve the ACA’s goal of expanding health insurance coverage and promoting a functioning insurance market in each state.

King v. Burwell

The Government argued:

The definitional and other provisions of the Act . . .demonstrate that the Act treats an Exchange established by HHS in a State’s stead as an Exchange “established by the State.”

King v. Burwell

District Court decision:The ACA as a whole evinced Congress’s intent to make the tax credits available nationwide.The District Court granted the government’s motion to dismiss. The plaintiff’s appealed.

King v. Burwell

The Court of Appeals:

The Court applied a two step test for reviewing the IRS Rule:

1.If the statute is clear and unambiguous, that is the end of the matter, and the court and IRS must give effect to the unambiguous statute.

King v. Burwell


A reviewing court should not confine itself to examining a statutory provision in isolation. Meaning of words or phrases may only become evidence when placed in context.

King v. Burwell


2.If a statute is ambiguous, meaning it is subject to more than one interpretation, is the agency’s action based on a permissible construction of the statute?

King v. Burwell

Court of Appeal’s DecisionThe requirement that each state is to establish an exchange must be considered in light of the fact that the ACA provides the federal government may establish an exchange within a state. All exchanges are to report information to the IRS regarding premium tax credits, which indicates Congressional intent that credits are available in all exchanges.

King v. Burwell

Court of Appeals:We find that the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS's determination, however, we uphold the rule as a permissible exercise of the agency's discretion. We thus affirm the judgment of the district court. 759 F.3d at 363.

King v. Burwell

Court of Appeals:

“the court is of the opinion that the defendants have the stronger position, although only slightly.”

King v. Burwell

Contrary court decision:

In Halbig v. Burwell, the DC Court of Appeals ruled the IRS regulation should be struck down and subsidies limited to state exchanges.

King v. Burwell

On November 7, 2014, the U.S. Supreme Court accepted the King v. Burwell case for review.

King v. Burwell

The Supreme Court will answer the following question:

whether the Internal Revenue Service (IRS) may promulgate regulations to extend tax-credit subsidies to coverage purchased through Exchanges established by the federal government under section 1321 of the Patient Protection and Affordable Care Act.

King v. Burwell

Issues the Supreme Court will consider:

1.The plain text of the specific provision v. the overall structure of the ACA?

2.Did Congress intend to defer to the IRS on this very important issue?

3.The impact that striking down the subsidies will have on insurance markets: will it wreck the whole ACA?

King v. Burwell

Likely in favor of upholding the IRS rule:Breyer, Sotomayor, Ginsburg, and Kagan

Likely in favor of striking down the IRS rule:Alito, Scalia and Thomas

The wild cards:Roberts and Kennedy

King v. Burwell

Justice Roberts:Not shown a preference for either side’s argument.

In the past, has signed off on opinions looking at legislation in context, with consideration of legislative history.

Usually rules with the more conservative justices.

King v. Burwell

Justice Kennedy:Has not taken a side in this case.

In oral arguments, did raise constitutional questions about whether Congress could coerce states into establishing exchanges with the threat of withholding subsidies to residents.

It is not really clear where he stands.

King v. Burwell

5 Justices are needed for a majority.

If either Roberts or Kennedy go with the 4 liberal justices, the IRS rule will be upheld.

A decision will be issued by the end of June.

King v. Burwell

Legal impact of a ruling to strike down ruleThe tax credit would not be available in 34 states that have not established state exchangesAny future rule by the IRS would need to limit tax credits to state-operated exchanges. It is unclear whether past tax credits (for 2014) would need to be repaid.

King v. Burwell

Legal impact of a ruling to strike down ruleCost sharing subsidies would not be available because they are predicated on eligibility for premium tax credits. Employers would not be subject to the employer mandate penalty because the penalty is predicated on at least one employee getting premium or cost sharing subsidies through an exchange.

King v. Burwell

Legal impact of a ruling to strike down ruleIndividuals enrolled in coverage with low income subsidies would have special enrollment rights, and could change plans within the 60 day special enrollment period

King v. Burwell

Secondary effect of a ruling striking down the IRS ruleMany people would no longer be subject to the individual mandate because coverage would not be affordable without the subsidies. An estimated 8 to 10 million people will drop insurance. (Up to 225,000 in Ohio). The mix of people being insured will change, making the insurance pool less healthy, causing average claims and premiums to go up.

King v. Burwell

Secondary effect of a ruling striking down the IRS ruleEstimates are the premium rates for people previously with tax credits would rise on average by 350%The cost of individual coverage will increase for everyone (on and off the exchange) by between 5 and 45% (depending on the estimate).

King v. Burwell

Secondary effect of a ruling striking down the IRS ruleInsurance companies would be required to revise rates for 2015 and 2016 in order for such rates to be actuarially justified.

– 2015 rates were filed last year and it is unclear whether regulators would allow rates to be changed in the middle of a plan year.

– 2016 rates were filed last month, and are still under review by ODI, with an opportunity for revision.

King v. Burwell

Secondary effect of a ruling striking down the IRS rule

Large employers may reassess the benefit plans they offer, and the efforts made to ensure compliance.

King v. Burwell

Mitigation Efforts if the IRS rule is struck down. It may cause the President and Congress to come to the negotiating table.Congress and the President could come up with an alternative solution so tax credits do not disappear immediately.It could create an opportunity for compromise on a number of issues.

King v. Burwell

Mitigation Efforts if the IRS rule is struck down.

The IRS might “deem” the 7 states that have federal/state partnership exchanges to be “established by the states”. This, however, could face a legal challenge.

King v. Burwell

Mitigation Efforts if the IRS rule is struck down. States might opt to establish and operate their own exchanges This may be politically difficult and unpopular The ACA funding to establish state exchanges is no longer availableEstablishing a new exchange takes at least a year and significant financial resources

King v. Burwell

Mitigation Efforts if the IRS rule is struck down. States might declare an intent to establish an exchange, identify a state agency that will serve as the state’s exchange, and then have the state agency contract with HHS to have the federal exchange perform all exchange functions as a subcontractor. This may be politically difficult and face legal challenges.

King v. Burwell

State Innovation Waivers may be accelerated

For plan years beginning on or after January 1, 2017, states may apply to HHS to waive various requirements of the ACA, including:

1.Benefit and subsidy requirements

2.Exchange and QHP requirements

3.Premium tax credits

4.The employer and individual mandates

King v. Burwell

The Supreme Court will issue a decision by June 30, 2015.

Questions

Doug Anderson, Esq.Bailey Cavalieri LLC10 West Broad Street, Suite 2100Columbus, OH 43215-3422Direct: 614-229-3301Cell: 614-264-2773Doug.Anderson@baileycavalieri.comwww.baileycavalieri.com

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