On Tuesday the U.S. Court of Appeals for the D.C. Circuit will hear Halbig v. Sebelius, a case that could upend the Affordable Care Act. Jacqueline Halbig and others are taking on Secretary Sebelius 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 regulations issued in May 2012 the Internal Revenue Service has extended subsidies to federal exchanges too.
The Affordable Care Act states that people who buy health insurance from state exchanges get subsidies if they earn under 400 percent of the poverty line, currently $94,000 for a family of four. Most applicants will qualify for some subsidy.
A different section of the Act (Section 1321) allows the federal government to set up exchanges in states that have not done so. But nowhere does the law say that people on these federal exchanges can receive tax subsidies.
The IRS extended the subsidies to those getting health insurance on the federal exchanges by defining an exchange as a "State Exchange, regional Exchange, subsidiary Exchange, and Federally-facilitated Exchange."
In February Judge Paul Friedman of the U.S. District Court for the District of Columbia ruled for the government that the IRS ruling was consistent with the intent of Congress, if not the letter of the law. The plaintiffs appealed to the D.C. Circuit, which hears the case Tuesday.
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.
The Justice Department had argued that the courts should not hear the cases because the plaintiffs supposedly have no standing. With the subsidies in the federal exchanges, the plaintiffs would pay far less for insurance than they would otherwise have to pay. The plaintiffs are thus not being hurt by being provided with subsidized insurance, the government argues.
But attorneys for the plaintiffs argued that extending the subsidies to federal exchanges puts their clients at a disadvantage. Without the subsidy, the Jones Day attorneys argue, the cost of health insurance would be greater than eight percent of their income, meeting the definition of unaffordable coverage. This would enable them to receive a certificate of exemption from the requirement to purchase comprehensive health insurance, which they did not want to buy. It would also enable them to buy catastrophic health insurance, low-cost insurance against major illness.
Otherwise, lower-cost catastrophic health insurance is only available to those under 30 years of age.
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. If the panel of Judges Thomas Griffith, Harry Edwards, and Ray Randolph rules for Halbig, the law will face serious problems.
Coincidentally, this week marks the fourth anniversary of the day President Obama signed the Affordable Care Act into law. Despite Halbig, one of the biggest questions surrounding the legislation is whether enough people will enroll in Obamacare exchanges to make the law successful.
In the six-month enrollment period spanning October 2013 to March 2014, the administration hoped to have more than 7 million enrollees. This is not going to happen. According to the monthly enrollment reports from the Department of Health and Human Services, cumulative Obamacare enrollment through February is 20 percentage points lower than anticipated, at just over 4 million.
With more than 80 percent of the enrollment period complete as of March 1, the latest data available, the administration hoped to have reached 80 percent of their total enrollment goal. However, they were short by nearly a million and a half enrollees, reaching only 60 percent of the cumulative goal with only one month remaining.
The administration has spent over $52 million trying to sell health plans to consumers, with little success. Consumers are rejecting the health care plans because they are more expensive than people are prepared to pay for, not because of lack of information.
The IRS ruling to extend subsidies to Americans in federal exchanges is only the top of the lawless iceberg. President Obama himself has announced numerous delays of various provisions of the Act by executive order. The requirement that small businesses have to provide coverage or pay a penalty was delayed first until 2015, then until 2016. The requirement that businesses have to offer coverage was delayed until 2015, then watered down until 2016. The individual mandate has been delayed indefinitely for some people, as those who have had their plans cancelled and cannot afford the new ones are exempt from the mandate. Plans that do not meet the requirements of the Act are now allowed to be sold. All this without new legislation—even though the deadlines were in the letter of the law.
It is time for the president to admit his signature legislative “achievement” needs to be repaired with new legislation. He is unwilling to do this because he is concerned that Congress will insert provisions that will dilute the Act still further. Yet polls show the law is unpopular, with more than half of the country disapproving of Obamacare. Millions of Americans have lost their insurance, had to switch doctors, and rejected the government-run health insurance marketplaces. The D.C. Circuit’s ruling might cast another blow to the Act. Rather than taking the law into his own hands, the president should begin working with Congress on alternatives.
Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning eBrief.
