Revisiting Obamacare

Could one of the main provisions of Obamacare be used to “reopen” a discussion of the law in the legislature? Cato Scholar Michael Cannon argues that state-run exchanges, or the absence thereof, can be used for this purpose.

Obamacare is unstable, he argues, because it instructs insurance companies to charge citizens of the same age the same premium regardless of their health risk. “That creates a huge incentive for those people not to purchase health insurance, to wait until they get sick to purchase health insurance,” said Cannon at a recent Capitol Hill briefing. “And when the healthy people aren’t buying health insurance that makes the market very unstable. That raises the average premium, and could cause the entire health insurance market to collapse, because as the premium goes up more people decide to opt out.”

To balance this preexisting conditions aspect, Obamacare includes an individual mandate and calls for each state to establish a state-run insurance exchange subsidized by refundable federal tax credits. Cannon said this would be a conduit for federal dollars straight into the pockets of insurance companies.

However, currently only 14 or 15 states have taken steps to create these exchanges and the vast majority have not, said Cannon. “The Secretary of Health and Human Services has estimated that she may have to create exchanges for as many as 30 states because states are so reluctant to create these on their own,” he said. “Outside experts have said that number may be too small; it may be closer to 40.”

The IRS recently issued regulations which would ensure that refundable tax credits are offered to citizens regardless of whether they are working through federal or state-based exchanges. This directly contradicts the law, which several times restricts these tax credits to state-based exchanges, according to Cannon. (Others disagree about the intent of these sections). “So how does the law work without the IRS rule?” he asked. “Well, if there are no state exchanges and there are no tax credits, that means no penalties against employers.”

Cannon argues that if many states do not participate in the exchanges, and if this regulation is overturned, then these monies would not go to insurance companies. “So, under the law as written, if states don’t create these exchanges, then they’re gonna, then those interest groups are gonna have a huge incentive to lobby Congress to reopen this law,” he argued.

“The money involved in these tax credits and the money that’s gonna go out of the federal treasury’s door as a result of this IRS rule, a very small share of that is … due to tax reduction — only 22 percent,” said Cannon. “78 percent of the money that we’re talking about is government outlays, checks that are written straight to insurance companies.”

Others do not agree. “The courts are unlikely to find the ‘established by the state’ language a ‘scrivener’s error,’” argued Washington and Lee University professor Timothy Stoltzfus Jost at a recent House Committee hearing, according to his official testimony. “But the courts will interpret the ambiguous language in the context of the [Affordable Care Act’s] structure and purpose, in light of the ACA’s legislative history, and putting great weight on the [Health Care and Education Reconciliation Act] amendment, and find that federally facilitated exchanges can in fact issue premium tax credits.”

“The IRS is explicitly authorized by Congress to interpret the statute and its interpretation of the law will be given deference by the courts,” argues Professor Jost, who is also a representative to the National Association of Insurance Commissioners and an elected member of the Institute of Medicine. “None of your constituents will be denied the tax credits made available through the ACA to ensure them access to affordable health insurance,” he argues.