Judge Paul L. Friedman of the U.S. District Court for the District of Columbia ruled on Wednesday in Halbig v. Sebelius that people who sign up for health insurance on federal exchanges in 34 states can get subsidies, disappointing those who thought that the courts would strike down the subsidies.
Despite the ruling, it seems clear that the Affordable Care Act is not working as intended. If the courts do not change it, it will surely need to be changed by Congress because of voter dissatisfaction. Enrollment is low, and only a quarter of enrollees are young people whose premiums are needed to subsidize the old and sick. When people get through on the website, many are finding that premiums and deductibles are higher than before, and that they do not have access to the doctors they saw previously.
The plaintiffs in Halbig v. Sebelius will no doubt appeal the ruling to the U.S. Court of Appeals for the D.C. Circuit. The verdict may well depend on which judges hear the case. In November, Senate Majority Leader Harry Reid and Senate Democrats eliminated filibusters for most judges and political appointees, allowing confirmation by a simple majority of 51 rather than 60 votes.
This allowed the Senate to confirm three new Obama appointees to the D.C. Circuit. Judges Patricia Millett and Cornelia Pillard were confirmed in December, and Robert Wilkins was confirmed on Monday.
Halbig v. Sebelius was brought because under the letter of the Affordable Care Act, subsidies for insurance premiums are only available for state health insurance exchanges, not the 34 federal exchanges. But through regulation the Internal Revenue Service has extended subsidies to federal exchanges too.
Even though Halbig referred to 34 federally run exchanges, the final number this fall turned out to be 36, because several states could not fully qualify for administering their exchanges.
Judge Friedman sided with the government, ruling that Congress intended the subsidies to apply to federal exchanges, even though the letter of the law reads differently.
He writes, “In sum, while there is more than one plausible reading of the challenged phrase in Section 36B [i.e. the insurance subsidy on federal exchanges] when viewed in isolation, the cross-referenced sections, the surrounding provisions, and the ACA’s structure and purpose all evince Congress’s intent to make premium tax credits available on both state-run and federally-facilitated Exchanges.”
Later this month, Judge James R. Spencer of the U.S. District Court for the Eastern Division of Virginia (Richmond) is expected to rule on the same challenge from another group of plaintiffs. Spencer’s ruling, whoever wins, will also be appealed.
The implications of the case are immense. Since health insurance plans are costly, people on the federally run exchanges need subsidies to purchase them. If they do not qualify for subsidies, few will be able sign up.
Still, if the Affordable Care Act does not fail because of flaws in the law, it will likely be changed by Congress due to voter pressure. Already, the administration is delaying implementation of certain parts of the law because it is unworkable.
When Halbig v. Sebelius was filed in May 2013, the exchanges were not yet open for business. House Minority Leader Nancy Pelosi, then House Speaker, famously said in March 2010, “But we have to pass the bill so that you can find out what is in it.” She was wrong: Americans have to experience Obamacare to know what is in it, and they do not appear to like what they are experiencing.
Implementation of the Affordable Care Act appears to have six major problems.
People are not signing up
A new report released this week showed that only 2.2 million people enrolled for plans in the exchanges in October through December, compared to a forecast of 7 million. Of those 2.2 million, 24% were younger Americans aged between 18 and 34. The administration had forecast that 7 million people would sign up, and that 38% of them would be young people.
Without more customers, especially more young people, whose health costs are low, insurance companies will suffer losses that will be paid for by the federal government, raising the costs of the program.
Numbers of uninsured will remain high
Even before the administration released its low enrollment figures, the Congressional Budget Office forecast that the Affordable Care Act was not going to achieve its goal of universal insurance.
In tables published in May 2013, CBO forecast that the number of uninsured non-elderly people would decline from 55 million in 2013 to 30 million in 2017 — and stay there until 2021, when it would rise to 31 million. The entire program, costing $1.4 trillion, is succeeding in insuring only another 25 million people.
Premiums are pricey
One reason that people are not signing up—after they get past the flawed websites—is that premiums are higher than expected. My Manhattan Institute colleagues Paul Howard, Yevgeniy Feyman, and Avik Roy have constructed an interactive map that shows differences in premiums before and after Obamacare by state.
Howard told me, ““Our analysis finds that, on average, Obamacare will increase underlying premiums by 41%, nationwide. Young men clearly fare the worst under Obamacare, with premiums rising 77% for the average 27-year-old. Older, and lower-income uninsured will find these increases offset by new federal subsidies, but it doesn’t change the fact that Obamacare is increasing the underlying cost of coverage, not lowering it.”
Deductibles are expensive
After enrollment, people find that deductibles are costly. For a bronze plan, the basic plan, deductibles can reach over $6,000 annually for singles and $12,700 for families. That means that to access the plan’s benefits, after preventive care, families have to spend $12,700.
People cannot keep their plans
Although President Obama said on multiple occasions that “If you like your plan, you can keep it,” this has not proved to be the case. Millions of plans have already been cancelled, and more cancellations are expected. On page 34,553 of the June 17, 2010 Federal Register, the administration forecast in a mid-range estimate that an average of 93 million people would lose their health plans in 2013. This includes 80 million people on employer plans and 13 million people with individual plans.
Since the employer mandate to provide health insurance was postponed until Jan. 1, 2015, employer cancellations have yet to come. But dissatisfaction with cancelled plans is likely to grow in 2014 as employers react to the mandate.
People cannot keep their doctors
President Obama also said on numerous occasions, such as a speech in Chicago on June 15, 2009, before the American Medical Association, “And that means that no matter how we reform health care, we will keep this promise: If you like your doctor, you will be able to keep your doctor. Period.”
People are naturally unhappy that they cannot keep their doctors. In order to keep costs down, insurance companies are reducing the numbers of doctors on their insurance plans, and eliminating some of the more expensive hospitals in the networks.
What is clear is that irrespective of Halbig v. Sebelius, the Affordable Care Act is unsustainable. If the courts do not end it, then Congress will face mounting pressure from voters to repeal or reform it. The challenge will be to enable Americans to get affordable health care while allowing them to keep preferred plans and doctors, just as the architects of the Act promised.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, directs Economics21 at the Manhattan Institute. You can follow her on Twitter here.
