Saturday, November 8, 2014

SCOTUS Updates From McArdle

Megan McArdle has a good summary of the Supreme Court's decision to review Halbig v. Burwell, which hinges on the availability of insurance subsidies on federally operated insurance exchanges.

From her piece, "Obamacare Courts Death Yet Again" (11/7/2014):
Sounds kind of boring, right?  Actually, this could severely damage, even potentially kill, Obama’s signature program...  [B]y granting cert, the Court is signaling that at least four judges are probably prepared to rule against the government.  Now, maybe they’ll change their minds later.  But I doubt it.
For more background, see her earlier piece, "Obamacare Takes a Body Blow" (7/22/2014):
This morning, a U.S. appeals court issued a ruling that could endanger, or even destroy, Obamacare. The case, Halbig v. Burwell, involved the availability of subsidies on federally operated insurance marketplaces. The language of the Affordable Care Act plainly says that subsidies are only available on exchanges established by states. The plaintiff argued this meant that, well, subsidies could only be available on exchanges established by states. Since he lives in a state with a federally operated exchange, his exchange was illegally handing out subsidies.

The government argued that this was ridiculous; when you consider the law in its totality, it said, the federal government obviously never meant to exclude federally operated exchanges from the subsidy pool, because that would gut the whole law. The appeals court disagreed with the government, 2-1. Somewhere in the neighborhood of 5 million people may lose their subsidies as a result.

This result isn’t entirely shocking. As Jonathan Adler, one of the architects of the legal strategy behind Halbig, noted today on a conference call, the government was unable to come up with any contemporaneous congressional statements that supported its view of congressional intent, and the statutory language is pretty clear. Members of Congress have subsequently stated that this wasn’t their intent, but my understanding is that courts are specifically barred from considering post-facto statements about intent...

For example, the core of the government’s case is that Congress cannot have meant to leave federal exchanges without subsidies, because without the subsidies, the insurance markets in states with federal exchanges would inevitably enter into a death spiral. And obviously Congress wouldn’t do that.

The problem, as the justices point out in their brief, is that the government has done just that...
And for what would happen if the Supreme Court rules against the government, see her piece "Questions for Obamacare Now" (7/23/2014):
In the states that don’t establish exchanges, the most likely outcome is a death spiral. For one thing, without the subsidies, fewer people would be subject to the mandate, because the cost of a policy would become “unaffordable” as the Internal Revenue Service defines it for the purposes of assessing mandate penalties. Even if that weren’t the case, without the subsidies, a lot of people would find it cheaper just to pull out and pay the penalties. The most likely people to do this? Healthy youngsters paying more in premiums than they get in health services. If they exit the exchanges, premiums will rise, and the markets will spiral downhill...

The most interesting question, I think, is what an adverse ruling would do to the insurance companies. A lot of big insurers mostly stayed out of the exchanges for the first year, waiting to see how they’d develop. Perhaps because the administration has sweetened the pot considerably for insurers over the last eight months, this year, they seem to be wading in deeper, albeit still cautiously.

But what if the pot of subsidy money starts shrinking, rather than growing? That was always going to be a problem, because the risk corridor program, through which the government has funneled many of its pot-sweeteners, ends in 2016, and starting in 2019, the law changes its indexing formula in a way that may require subsidized families to pay a higher share of their income toward premiums. This problem used to look comfortably far away, giving the exchanges some time to get their sea legs. An adverse ruling in Halbig might bring it right up close where we can see it.

If insurers start to pull out, or demand huge premium increases to stay, Obamacare’s future looks cloudier. As I’ve written before, Democrats and insurers are now locked in a sort of prisoner’s dilemma, where the benefits of staying together are probably high, but the temptation to defect may be even higher. Once one stampedes, both will head for the doors very quickly.
With new GOP control of the Senate (and the inevitable political calculations of leaders from both major political parties planning for the 2016 election), there's a lot more uncertainty now about the future of ObamaCare.