In a potentially huge blow to the Affordable Care Act (ACA), or Obamacare, the U.S. Appeals Court for the D. C. Circuit today ruled in a 2-1 decision that the I.R.S. lacked the authority to allow subsidies to be provided in health insurance exchanges not run by individual states (Halbig vs Burwell). (Here)
First, we need some background. The fundamental goal of the ACA was to force every American to obtain health insurance. The law’s original budget allowed 4-5% of total cost to go to administrative overhead. The remaining 95% went to expand Medicaid and to provide taxpayer subsidies for people to purchase health insurance in state exchanges. (Here) Each state was suppose to establish their own exchange, which would function as an insurance brokerage or clearing house. The U.S. Supreme Court ruled in 2012 that each state could decide whether it would expand Medicaid. (Here)
To date, only 14 states plus the District of Columbia have elected to set up their own exchanges. Washington state is one of the 14. The federal government has set up an exchange for the remaining 36 states. This is what the law-suit is all about.
The wording of the ACA is very clear that subsidies can only be given in exchanges “established by the state.” In other words, no subsidy can be given in a federal exchange. Supporters of the law have said the intention of the law was ANY exchange, yet the language of the law is very clear. There is also conjecture that the architects of the law assumed all states would participate and used language that would not tread on states-rights issues.
Regardless, the Halbig decision has huge ramifications. First of all, it means no one in the 36 states with the federal exchange can receive taxpayer subsidies. Secondly then, those people can’t be taxed to provide subsidies for the other states. Thirdly, therefore, those people can’t be subject to the individual mandate to purchase health insurance. It would also potentially nullify the employer mandate for employers in the states with a federal exchange.
Since the individual and employer mandate are two of the basic fundamentals of the ACA, the Halbig decision puts the entire law in jeopardy.
If Washington state were to switch to the federal exchange, the Cato Institute estimates 253,000 people with individual health insurance plans and 1.72 million with employer-sponsored plans would be free of the mandate to own health insurance. (Here) Proponents of the law argue that these people would then face higher insurance premiums. In reality, however, premium prices would remain the same. These folks would simply not receive the illegal taxpayer subsidies and could decide on their own whether they should own health insurance.
This decision is far from resolved, however. The 4th Circuit Court of Appeals in Richmond, Virginia, upheld the I.R.S. contention that subsidies could be given in the federal exchange. (Here) There are also cases pending in Indiana and Oklahoma. The Obama Administration wants the entire appeals court panel to review the case. The U.S. Supreme Court will very likely make the final decision.
The ACA continues to be one of the largest and most controversial laws in the history of the country. The Halbig ruling has the potential to unravel the entire law.