As CVS-Aetna merger talks fill the air this Christmas season and experts weigh in on the impact this will have on the economy and consumers alike, I’m sitting at a little desk in a little office contemplating health insurance.
I run a little shop that’s about as far from CVS-Aetna as you can get in the health care space : a solo practice doctor with four full time employees and revenues a little south of $65 billion dollars. I shouldn’t feel too alone. Small businesses account for 99% of US firms and employ almost half of all private sector employees. But knowing my problem is one shared by many provides only partial solace.
Prior to arrival of the ACA, I provided health insurance to everyone through the company. At the time I had 3 full time employees and the insurance broker I worked with got me a quote for $1300 / month. Now, I really didn’t want to be in the providing healthcare business, so when the ACA arrived with its individual market I was happy to facilitate buying health insurance from the exchanges. So initially, I chose to pay for my employees plans on the individual market. I was quickly told by my accountant that paying for my employees insurance in this manner was running afoul of a three letter entity of the federal government called the IRS.
Apparently the individual ACA market premiums were allergic to being deducted in this pre-tax manner. Fine. So I went ahead and paid each employee $6000 per year extra with the understanding that they would use that money to buy health insurance on the individual market.
Today’s 2-1 decision by the DC Court of Appeals striking down federal premium subsidies, in at least the 27 states that opted for the feds to run their Obamacare insurance exchanges, has the potential to strike a devastating blow to the new health law.The law says that individuals can get subsidies to buy health insurance in the states that set up insurance exchanges. That appears to exclude the states that do not set up exchanges––at least the 27 states that completely opted out of Obamacare. Another nine states set up partnership exchanges with the feds and the impact on those states is not clear.The response by supporters of the law, and the IRS regulation that has enabled subsidies to be paid in the states not setting up exchanges, hinges on the argument that the language is at worst ambiguous and the Congress never intended to withhold the subsidies in the federal exchange states.
But in the DC Court ruling one of the majority judges said, “The fact is that the legislative record provides little indication one way or the other of the Congressional intent, but the statutory text does. Section 36B plainly makes subsidies only available only on Exchanges established by states.”
My own observation, having closely watched the original Obamacare Congressional debate, is that this issue never came up because about everybody believed about all of the states would establish their own exchange. I think it is fair to say about everyone also believed a few states would not establish their own exchanges. Smaller states, for example, might opt out because they just didn’t have the scale needed to make the program work. I don’t recall a single member of Congress, Republican or Democrat, who believed that if this happened those states would lose their subsidies.
As my head reels at the implications of the IRS scandal mushrooming in Washington, the IRS’s recently disclosed ability to access e-mails without warrant, the intricacy of the NSA PRISM wiretap techniques that includes their ability to acquire tech firms’ digital data, and even the Justice Department’s ability to secretly acquire telephone toll records from the Associated Press, I wonder (as a doctor) what all this means for the privacy protections afforded by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) in our new era of mandated electronic medical records. Are such privacy protections credible at all?
It doesn’t seem so.
Now it seems everyone’s health data is just as vulnerable to federal review as their Google search data. This is not a small issue. We have already seen that discovering “leaks” of personal health information has produced some very handsome rewards for the feds, so it is not beyond reason to think that HIPAA might also be a funding tool for our government health care administration disguised as a beneficent effort to protect the health care data of our populace.
But even more concerning is the role the IRS scandal has for America’s health care system. After all, the Affordable Care Act is ultimately funded by the IRS by administering some 47 tax provisions. These include the right to levy a penalty against businesses and individuals who don’t provide or acquire insurance and determining how to distribute annual subsidies to 18 million people who make less than $45,000 a year and thus qualify for subsidies in buying health coverage. In addition, the agency will collect taxes on medical devices and a surtax on people making more than $200,000 a year, as well as conducting compliance audits of tax-exempt hospitals.
If the devil is in the details, we got the motherlode this past week as to how the most incendiary part of President Obama’s health reform will actually work when it launches next January.
The Department of Health and Human Services issued lengthy rules on the controversial individual mandate requiring uninsured Americans to purchase a health plan. The IRS followed with nearly as lengthy a set of rules specifying who is eligible for subsidies for those purchases and who pays penalties when they refuse. In what critics will consider an Orwellian flourish, both federal agencies refer to these penalties as “shared responsibility payments” — even though the Supreme Court, in its upholding of the mandate, plainly referred to them as what they are: a tax.
The two sets of rulings represent a sort of good cop, bad cop routine from the Obama administration. The bulk of the HHS rules defines individual outs for the mandate, identifying 11 different types of uninsured Americans who will be exempt from the de facto tax, ranging from sudden financial impairment to genuine religious objection to medical care. The IRS rules are all bright hard lines about who has to pay, when, and how.
The major media, echoing criticism by Obamacare’s agitators from the Left, seized on the stinginess of the IRS rules regarding subsidies and penalties for family members of people covered by their employers, or what they call the “family glitch.” The glitch is technically real, but statistically remote, and will affect almost no one in the real world, but it does make for good inflammatory headlines.
The morning after Tuesday’s vote, there is one thing every commentator agreed on. The election of Barack Obama guaranteed that his signature piece of legislation — health reform — can now go forward. Republicans are powerless to stop it.
Yet there is something all these commentators are overlooking. There are six major flaws in ObamaCare. They are so serious that the Democrats are going to have to perform major surgery on the legislation in the next few years, even if all the Republicans do is stand by and twiddle their thumbs.
Here is a brief overview.
ObamaCare is not paid for. At least it’s not paid for in any politically realistic way. As is by now well known, the legislation will lower Medicare spending over the next 10 years by $716 billion in order to fund health insurance for young people. This reduction will primarily consist of lower payments to physicians, hospitals and other providers — reductions that are so severe that they will seriously impair access to care for senior citizens.
Healthcare reporters have been in a frenzy to report this week that the ACA is a done deal and states should get on with it. The election certainly changes the dynamic in the repeal effort, as Speaker John Boehner indicated in a recent interview with ABC News, yet the implementation battle is far from over.
The next interesting story line is developing out of an OK lawsuit pertaining to the legality of subsidies being made available in the federal exchange. To be more specific, it challenges an IRS rule that imposes an ACA employer mandate where the statute does not appear to authorize it. If this case were to prevail, it would undermine the “fallback” federal exchange that is going to be established for states that opt to forgo setting up their own state exchange.
Governors in SC, GA, FL, KS, VA, MO are on record that they will not set up a state exchange. Most believe, minus the Democratic Governor of MO since a ballot question prevents him from unilaterally setting up an exchange, that the subsidies will not be available in the federal exchange, and will put the federal government between a rock and a hard place.
The election results at the state level also play into this story.
Ezra Klein is right. In a recent Washington Post column, the left-leaning policy wonk laid plain that the future of ObamaCare is at stake in next week’s elections. If President Obama wins and Democrats hold the Senate, the Affordable Care Act will survive. If Mitt Romney wins and Republicans take the Senate, the law is dead. It is the starkest of differences.
How likely is each scenario? At this moment Democrats have the advantage. According to Real Clear Politics, the president is running slightly ahead in six out of ten battleground states. He could actually lose seven of these, but still be reelected if he hangs onto Ohio, Wisconsin, and Iowa.
While key Senate races have tightened, such as Tommy Thompson in Wisconsin, Democrats have a slight advantage there too. If the elections were held today, Republicans would fall two seats short.
What would this future look like? Implementing ObamaCare would be accelerated. HHS and states will have less than fourteen months to finalize major provisions of the law before they take effect on January 1, 2014.
Thousands of pages of regulation will be released shortly after the election, on everything from IRS rules for employers to essential health benefits to covering pre-existing conditions. It remains to be seen how prescriptive these regulations would be.
State officials will have to submit a blueprint for their insurance exchanges by November 16th. They will need to decide if they will create and exchange and how it will be designed.
They will also have to decide whether to expand their Medicaid programs, and they’ll need to determine essential health benefits and benchmark plans for the insurance options to be sold through their exchanges.
Now that the Supreme Court has decided that ObamaCare’s mandate to buy health insurance is a tax, will the IRS be able to collect it?
Generally speaking, if you owe the IRS, it will get the money from you—with the possible exception of the ObamaCare tax. Though ObamaCare’s individual mandate imposes a tax on people who do not purchase government-approved health insurance, the law explicitly neuters the IRS’s ability to collect the tax.
Bizarre? Yes. And it matters. If policymakers expect uninsured young people to buy health insurance when it is even more expensive than it is today, the threat of serious consequences for not doing so must be real. Yes, the threat that the IRS might come after you if you do not do what you are told looks real at first glance. But Democratic politicians, fearing public backlash for making the mandate too intrusive, pulled its teeth.
First, the tax (nee penalty) is too small to matter to the people who are its target. In 2014, the tax will be the larger of $95 or 1 percent of taxable income for an individual. By 2016 it rises to $695 or 2.5 percent of income. Young people would not want to pay a dollar if they could avoid it, but avoiding the tax means signing up for insurance that many do not think they need. That insurance is not free. Even with subsidies, they will pay at least 3 percent of their incomes for premiums and up to 6 percent of the cost of the insurance in deductibles and copayments. That adds up to a lot more than 95 bucks.