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I want to welcome Wharton healthc care
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professor Scott Harrington to join us
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today and he's going to talk about some
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appeals court rulings on Obamacare that
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are leaving a lot of people scratching
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their heads as to the future of
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Obamacare and the subsidies that are
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required uh for some of the low and
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middle inome folks uh that have already
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signed up for it. Scott, we had two
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appeals court decisions yesterday. uh
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one was the fourth circuit and one was
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out of DC I believe they came to
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opposite conclusions. Um could you give
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us briefly what happened and and and
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what it means? The DC court came
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decision came first and basically that
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court ruled that the plain language of
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the affordable care act does not permit
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the federal government to provide
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premium subsidies to lower income people
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in states that did not establish their
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own exchanges. This calls into the
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question the legality of those subsidies
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in well over half the states and could
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have a dramatic impact on the insurance
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marketplaces in those states if this
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ultimately were to become the law of the
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land. Two hours later the fourth circuit
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released an opinion that was
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diametrically opposed. It said that the
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language in the statute regarding
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subsidies was ambiguous and as a result
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the court would defer to the Internal
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Revenue Service interpretation of the
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statute which had held that the
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subsidies could be paid in all states
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regardless of whether the federal
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government ran the exchanges or the
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states had established their own
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exchanges.
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for someone who's holding a policy right
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now who signed up for the Affordable
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Care Act and who is, let's say, getting
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a subsidy. I know a lot of folks are are
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paying $100 a month or even less. I I
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mean, the average may be a little
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higher, but we're talking about $4.7
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million people overall. And uh most of
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them are um are paying uh what would be
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considered very low premiums compared to
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what might happen on the open market for
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them where they might not even be able
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to afford it. The whole purpose of the
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act. So they're left in limbo a little
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bit. They don't know if they're going to
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get the reimbursement uh that's going to
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uh reduce their premiums to the levels
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that they thought they were signing up
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for. So So they're in limbo. um
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insurance companies are in limbo and of
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course lawmakers are in limbo but it it
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seems to me that the um uh that this is
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very confusing and not settled yet. So
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we had three a three panel uh judge
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group make this decision in the DC court
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circuit but that court I believe has 11
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judges and can't the president say wait
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I would like the entire circuit court
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there all 11 judges to come back and and
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rejudge this. Isn't that how it works?
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Yes. And the administration will ask for
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the entire panel to come back and
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reassess this decision. It's uncertain
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what they will do and what the effect
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would be. It's not a done deal that this
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overall panel, this overall group of 11
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judges would overturn the three judge
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panel. Although the overall panel is
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heavily democratic, including several
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new appointees from the president, there
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is a great reluctance to overturn the
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decisions of a three judge panel by the
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overall group. So, it's not a done deal.
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And maybe more important, even if the
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full dis DC court were to overturn the
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three judge panels decision, it's very
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like the decision would be appealed to
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the Supreme Court and there's a very
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good chance the Supreme Court would take
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the case anyway.
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Tough tough question. Any any guesses on
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which way the Supreme Court might rule
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on this, which would be of course down
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the road and allow for years of
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confusion in the interim? Well, we're
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looking at resolution of this
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uncertainty that probably will take at
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least a year and maybe even into June of
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2016 depending on when the court would
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take the case and if it would wind its
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way through the process to get to the
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Supreme Court during the coming term as
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opposed to the 201516 term. My initial
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impression was there wasn't a snowballs
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chance that the Supreme Court would
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basically eviscerate the ability to pay
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these subsidies in states without uh
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state exchanges given Justice Roberts
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decision in the constitutionality case
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that arose and was decided in 2012.
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However, when you really start to think
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about it, the cases are fundamentally
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different. What the court decided in
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2012 was whether the law was
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constitutional. This is a different
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issue. It's what what does the statute
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say about the authority of the federal
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government to pay subsidies? And it's
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conceivable that some of the justices
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will take a different tag. And if they
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look at the language and decide that the
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language is plain, then it's quite
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possible the court could maybe five of
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those justices would say the language is
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clear and that subsidies cannot be paid
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as the law is written. Even in states
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that have approved it and adopted their
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own system or their own system in states
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that have state exchanges, the law is
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clear. Okay. So, they would continue to
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um folks in those states would continue
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to get the subsidies and and overall
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with consumer uh policyholder concern.
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Nothing is going to happen anytime soon.
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The subsidies are going to continue at
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least through the next year and very
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likely through 2015. Certainly this can
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create confusion among people and there
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is concern among insurance companies and
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consumerrists that this additional
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confusion uncertainty about the law
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could discourage some people from
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signing up that otherwise would have
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signed up. But we're not going to know
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we're not going to resolve this
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uncertainty for quite some time. On the
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other hand, you have 4.7 million people
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thereabouts benefiting from this uh and
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uh many of whom could have their
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subsidies pulled out from under them.
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Isn't that a tough thing to do also for
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uh a governor of a state? I mean, they
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may do it, but isn't that a a diff
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because these are not folks that can
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easily afford to get insurance
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otherwise? That was the whole point of
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the act. They may be without insurance.
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If that happens, it could be it could be
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very tough. As you indicated, the
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average person in these states that
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might lose subsidies is paying a premium
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of about $70 a month. The premium would
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rise to about $350 a month if they
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didn't have the subsidy. the governors
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in these states and the legislatures
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when you're looking at well do we do
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something to maintain these subsidies or
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do we just let them go away are going to
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be under strong political pressure not
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to have that coverage go away the
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ability to afford that coverage go away
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now we have to sit back and go a lot of
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states didn't expand Medicaid under the
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Affordable Care Act even though the
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federal government was paying the lion
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share of the cost how
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many roughly I think roughly 27 states
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expanded and a you were still discussing
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but 20 states are not moving forward
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with federal Medicaid with Medicaid
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expansion and many of those states are
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the ones that have are using the federal
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government for the exchanges as opposed
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to establishing their own exchange. Now
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there's a difference though in the sense
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of not expanding a benefit to a group
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strong political pressure to expand but
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not expanding is I think distinct from
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having something that people got and
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then yanking it out from under them. So,
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there are a lot of things that could
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happen pending the court's ruling. We
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might see some states move towards
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establishing exchanges in anticipation
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of an adverse ruling. It's also possible
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and legal get down into the legal weeds
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here. And it's not clear what can be
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done, but it's possible that the
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Department of Health and Human Services
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will come up with rules that make it
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very easy for states to say that they
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have a state exchange even though they
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may be relying heavily on the federal
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government. So there's uncertainty on
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that dimension as well. And for the
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insurance companies, um, how is this
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uncertainty likely to affect them?
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If you've invested a lot of money in
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entering the state marketplaces and
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trying to really build a book of
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business there, you're likely to be
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cautious but not panic. Uh, because I
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think if you look at the probabilities,
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the probabilities that these subsidies
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will actually go away may be relatively
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low. I would say though that companies
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that are thinking about expanding into
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additional states or new insurers that
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are thinking about entering the
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individual health insurance market in
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states that don't have state exchanges.
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I would tread very cautiously if I were
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them.
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What's the bottom line here? Is it is
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that there's lots of confusion and this
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could slow maybe even undermine the
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program or is it that more that this is
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a big bump in the road but in the end um
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it's going to be difficult to pull these
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programs away from people um and and yes
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maybe some states will not participate
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that may have gone ahead and
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participated but that uh or is it just a
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big mess and we don't know
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I'd say it's a big mess I can see
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scenarios playing out different ways. I
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think what we know after yesterday is
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that the Affordable Care Act is still
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unsettled law and there's enormous
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uncertainty even before the yesterday's
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decisions about will the employer
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mandate actually be enforced and go into
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effect and things like that. Enormous
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uncertainties. And I think what's
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particularly disturbing about the whole
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process over the past 5 years is that
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when the law was enacted, the lack of
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any bipartisan support for the
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legislation that came out has really
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come back to to harm us in many ways
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because we are so completely divided on
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this issue. You know, it's wishful
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thinking pie in the sky to think that
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the people in Congress could actually
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get together and say, could we agree on
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some changes that would actually make
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the law work better and give rise to
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some bipartisan support? We we can't
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really see that happening right now, but
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we're going to be in this mess. We're
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going to be in this turmoil for at least
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another year or two. And of course, the
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ultimate outcome will also depend on the
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elections this year and the election in
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2016.
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What haven't I asked you that would be
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important to know or think about
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regarding this issue?
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I would keep in mind there's many people
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say, well, it's clear that the Congress
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wanted subsidies to go to all states,
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but there is at least some plausibility
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to the notion that the statute was
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written the way it was written in order
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to make sure to give the states a very
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strong incentive to establish exchanges
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and that the fact that they didn't was
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largely un unanticipated and maybe was
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fueled by the IRS ruling that said
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you'll get subsidies even if you don't
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establish a state exchange. So I don't
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agree with people that basically say
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that the district court decision in D or
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the appeals court decision in DC was
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totally inconsistent with intent. I
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think in fact if you look at the fourth
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circuit's decision they also said there
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was the legislative history was unclear.
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The intent of the Congress was unclear
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and that that lack of clarity along with
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the ambiguity in the language meant that
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they should defer to the IRS. But the
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the foregone conclusion that the
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Congress did not intend to induce the
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states to establish their own exchanges
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by linking subsidies to doing so, I
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don't think we can be fully sure of
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that.
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[Music]
