Health+Benefits the April 2015 issue

The Affordable Care Act’s High Stakes: Counterpoint

The Supreme Court might do what Congress could not – bring the president to the negotiating table.
By Joel Wood Posted on April 1, 2015

For almost four years now, we’ve been saying there’s a big problem lurking for the Affordable Care Act: the subsidies for millions of (mostly middle-class) Americans in the federal exchange would be in jeopardy if the Supreme Court were to consider whether the statutory language of the law allows it. Now that the Court has heard arguments in King v. Burwell, many are betting Chief Justice John Roberts will side with conservatives on the Court. Political chaos could ensue upon a ruling, which is expected in June.

A ruling against the law would be bad news for President Obama and congressional Democrats—more so than for Republicans. Don’t believe a word of the opposing view from my colleague Joel Kopperud (the younger, thinner, liberal Joel), who will give you the litany of reasons why this will be a disaster for the GOP. He’s just plain wrong.

President Obama’s legacy is the ACA. A Supreme Court ruling for the plaintiffs will demonstrably upend some of his legacy and will prove again that the tortuous, 2,400-page law— which passed on exclusively partisan grounds, unlike every other entitlement program of the last century—doesn’t work. Tea Party fantasies notwithstanding, such a decision won’t lead to the law’s repeal and certainly won’t result in a retreat by President Obama. But it will weaken the law substantially, opening the door to welcome negotiations on a litany of reforms.

Doing the King math shows that 7.5 million people would be hit with premium hikes if the justices kill the subsidies. The average premium would jump 225%.

GOP leaders are well aware they must offer an alternative. Sen. Ben Sasse, R-Neb., a newly elected conservative, has suggested a temporary solution: enroll those who lose their subsidies in COBRA for 18 months. Despite the perception, the administration would never buckle on changes. The White House accepted several in 2012, including elimination of the CLASS Act long-term care program, reductions in subsidies to health insurance co-ops, and a big whack to Medicare Advantage plans. A Supreme Court ruling in support of the plaintiffs will force the administration to the negotiating table.

Otherwise, the exchanges will become like Medicaid with blue states and red states—those that participate in expansion and those that do not. The pervasive political wisdom on Medicaid in 2010 was that, as soon as the residents of Texas realized they were subsidizing the residents of, say, Massachusetts on Medicaid expansion, they’d get with the program and demand their state leaders expand the program. For a host of reasons, 22 states haven’t gone along, and most never will.

It’s naïve, therefore, for the blue state leaders to believe red states would rush to amend their laws to become “partnership” exchange states with the federal government for their citizens to continue to receive ACA subsidies. A few states might—but not many and certainly not all. This might make for a great political issue for Democrats, and the media frenzy will certainly be aimed at Republicans. The short-term political gain might exist for Democrats in casting Republicans as insensitive to those receiving the ACA entitlement, but those political gains are at the expense of the ACA’s long-term viability.

We do need the administration at the bargaining table. Churning its way to the top of the list of problems is the looming “Cadillac” excise tax, which is already starting to have an impact on employer health insurance coverage. Even though the tax does not take effect until 2018, companies already are starting to reduce the value and quality of their high-end health plans to avoid the coming tax. This tax will be a 40% levy on the value of a health insurance plan that exceeds a statutory limit—$10,200 for individuals and $27,500 for families. For every dollar over $10,200 for singles and $27,500 for families, the plan will be taxed 40 cents. It’s not indexed to medical cost inflation, so all of the estimates are that within a few years most plans will be subject to the tax. 

The Cadillac tax is “scored” at $100 billion in revenue over a decade. But I’ve yet to hear of a single client who is going to pay the tax. They’ll reduce benefits instead. Congressional Democrats, sensitive to labor unions, are joining in the chorus of Cadillac concern. 

Of course, we have a long agenda of benefits items beyond the Cadillac tax that we want on the congressional agenda: wellness, non-discrimination, medical device taxes, it goes on and on.

But for the remainder of the Obama administration, there is likely to be no legislative success unless the White House is ready to bargain. The existential threat of a King decision in favor of the plaintiffs is apparently the only thing that’s going to get them to the table. 

If that decision comes, it’ll be the administration’s choice whether to point fingers or to work with congressional leaders to come up with solutions. It won’t be the Republicans’ fault if the legislation craters and the president is unwilling to show flexibility.

Read The Affordable Care Act’s High Stakes: Point

Joel Wood Senior Vice President, Government Affairs, The Council Read More

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