Author: Lucien Wulsin


King v. Burwell in the U.S. Supreme Court

The case is about individuals’ refundable tax credits that help pay for individuals’ health insurance in the 34 (37) states whose Exchanges are administered by the federal Department of Health and Human Services. There are about 8.6 million subscribers now enrolled – ranging from about 1.6 million in Florida and 1.2 million in Texas to 18,000 in South Dakota and 21,000 in Alaska who could be impacted. http://www.hhs.gov/healthcare/facts/blog/2015/02/open-enrollment-week-thirteen.html This does not apply to states like California or New York or Vermont or Washington State, which decided to run their own Exchanges.

The petitioners, 4 residents[1] of the Commonwealth of Virginia, maintain that the ACA does not authorize individual refundable tax credits in states unless the state decided to operate their own state Exchange, rather than deferring it to HHS. Health coverage for 385,000 fellow Virginians would be impacted. The District Court and the 4th Circuit Court of Appeals decided that the ACA did authorize refundable tax credits to all individuals regardless of which option their state chose. The Supreme Court is now about to hear oral argument on March 4. http://www.scotusblog.com/case-files/cases/king-v-burwell/ The Supreme Court’s decision will apply to at least 8.6 million individuals (and growing) in all 34 (or 37) states with HHS operated Exchanges – not California.

Here is a little background on the arguments. The Affordable Care Act/ObamaCare requires all Americans to have basic health coverage — the lowest cost bronze coverage pays at least 60% of the costs of their health care. It requires all insurers in the individual and small employer markets to sell coverage regardless of an individual’s health status. It helps individuals pay for their coverage through a refundable tax credit that is graduated based on an individual’s ability to afford coverage – i.e. those with the lower incomes pay less and those with higher incomes pay more and the tax credits pay the difference.[2] These are referred to as the three legs of the stool of the ACA (affordability, availability and personal responsibility). The tax credits are paid by the US Treasury to the private health plan that the individual selects within the Exchange – in other words these are individual tax credits for individual health insurance purchased through Exchanges.[3]

The ACA permits states to choose to operate their own Exchange, or have the federal government (HHS) operate their Exchange consistent with the laws governing insurance in the individual’s state of residence. The federal regulations from the IRS (Treasury) and HHS (Health and Human Services) give states four options: run your own Exchange, run a regional Exchange with several other states, run a hybrid Exchange where the state performs some functions and the federal government others functions, or have the federal government (HHS) run it for you. Many states decided to let HHS run their Exchanges – an option that California strongly considered and rejected.

The IRS rule that is being challenged (26 C.F.R. § 1.36B-2(a)(1)[4] provides individual federal tax credits regardless of which approach a state took. The petitioners say that under the ACA the credits are only available to individuals in states that operate their own Exchange, and the IRS rules should be struck down as a violation of the ACA. Their argument is based on their reading of 26 USC 36B (tax credits) and Sections 1311 (state operated Exchanges) and 1321 (state Exchanges operated by HHS) of the Affordable Care Act. The ACA subsection of 26 USC 36B[5] in question is cross-referenced back to ACA §1311 and makes no reference to §1321. The federal government (the respondent) defends its rule by pointing out that §1321 is a subsidiary of §1311 (i.e. the federal government is operating the Exchange for the state in accordance with state insurance laws and the state’s Medicaid rules), that the ACA from start to finish is about providing affordable coverage for every American, and that administrative rule making is to be given wide deference by the courts.

The Fourth Circuit in King v. Burwell held that in reading the whole Act and the legislative history Congress clearly intended the tax credits to be available nationwide regardless of whether an individual purchased coverage through state or HHS Exchanges, and the IRS rule was fully consistent with the ACA. http://www.scotusblog.com/case-files/cases/king-v-burwell/

You may find the briefs of the Petitioners and Respondents compelling reading if you are a lawyer, or have great fondness for legal writing. See http://www.scotusblog.com/case-files/cases/king-v-burwell/ I found the Petitioner’s efforts to come up with an argument to explain why Congress intended to disadvantage individuals in states with HHS run Exchanges and then didn’t tell anyone about it to be the most entertaining portion of the briefs. Since there was not a word of contemporary legislative history to that effect, they created hypothetical back room deal making to encourage state-operated Exchanges and punish the citizens of states that chose federally operated Exchanges.

This is a Hail Mary pass to undo the ACA at a time when it appears to be working increasingly well – more people are getting coverage, the electronic enrollment is functioning, and individual insurance market premiums are stable. However, the Supreme Court took this case on certiorari (i.e. it was discretionary) indicating that at least 4 Justices thought it had some merit and wanted to hear it. A parallel case, Halbig v. Burwell, Number 14-5018 (DC Circuit, July 21, 2014) is pending before an en banc panel of the DC Circuit, which had vacated the 2-1 decision striking down the IRS rule.

Many of the ACA’s Congressional opponents have been asking the Administration what it will do to preserve coverage for the 8+ million residents in states with federal Exchanges and assure the viability of their individual insurance markets. To date, the Administration has maintained it has no back-up plans, and it expects the IRS rule-making to be sustained.

Others have pointed to the market and human chaos that will ensue if the IRS rule is struck down – removing one of the key pillars (affordability) of the Affordable Care Act in these states. See Amicus Brief of the Commonwealth of Virginia and many other states including Mississippi, North Carolina, Iowa, New Mexico, Maine and North Dakota, which selected HHS to operate their state’s Exchanges. http://www.scotusblog.com/case-files/cases/king-v-burwell/

Essentially, this was a case generated by two distinguished scholars affiliated with the Cato Institute about a possible drafting glitch in the ACA.[6] It’s surprising that it has gone to the Supreme Court given the undisputed legislative history of the ACA to cover every American, but nine justices will yet again have an opportunity to go down in the history books ruling for or against coverage for every American.

 

 

[1] Petitioners claim they want to buy catastrophic coverage rather than bronze coverage and their eligibility for tax credits/premium assistance disqualifies them from purchasing catastrophic coverage.

[2] Because individual health insurance premiums are age rated and family rated (i.e. you pay substantially higher premiums in individual markets as you age or have more family members), those who are older and with larger families get more help (bigger tax credits) than individuals (with equal incomes) who are younger and have fewer family members.

[3] Employers and employees have a different system of tax subsidies – pre-tax purchasing. For the self-employed a tax deduction is also available.

[4] http://www.gpo.gov/fdsys/granule/CFR-2013-title26-vol1/CFR-2013-title26-vol1-sec1-36B-2/content-detail.html

[5] (http://www.gpo.gov/fdsys/granule/USCODE-2010-title26/USCODE-2010-title26-subtitleA-chap1-subchapA-partIV-subpartC-sec36B)

[6] Jonathan H. Adler & Michael F. Cannon, Taxation Without Representation: The Illegal IRS Rule To Expand Tax Credits Under the PPACA, 23 Health Matrix 119, 123 (2013)

 

Mom, Dad, I’m 26 and I forgot to enroll in Covered California, “I’m so sorry, but what do I do now”?

If you just started preparing your taxes for that refund you were hoping for and you just now learned that there is a tax penalty for not enrolling, you can apply from now until April 30 at Covered California. http://www.coveredca.com/

If your income is less than $16,100 for an individual, you may apply for Medi-Cal at any time. There is no limited open enrollment period for Medi-Cal.

If you got married, had a child, lost health coverage, moved to another county or state, lost your job, your income changed a lot so you now qualify for help paying your premiums, you became a citizen or a new legal permanent resident or you had a really, really good life changing excuse, you can qualify for “special enrollment”, but you have to do it in 60 days of the life event.

Mom, how much is that tax penalty, maybe I should just pay it. For last year (2014), it was $95 per person or 1% of your annual income, whichever is more. For this year (2015), it will be $325 per person or 2% of your annual income, whichever is higher. For next year, it goes up to the higher of $650 or 2.5% of your annual income. Just don’t ask your Dad to pay your tax penalties.

ITUP Draft summary of the §1115 Waiver Concepts

ITUP Draft Summary of the State’s §1115 Waiver Concepts, dated 2/11/15

The request is for $15-20 billion in increased FFP over 5 years or $3-4 billion a year in federal and state shared savings. The state and federal government would agree on a per member per month cost amount that would be allocated to the state to support the delivery system reforms envisaged. It appears that the state would make the enhanced pmpm available to local managed care organizations who would in turn be responsible to achieve the goals of the waiver.

Download the full draft summary here: Summary of the State’s §1115 Waiver Concepts

If You are Uninsured…

If You are Uninsured or Have Private Individual Insurance, Ten Good Reasons to Enroll before February 15, 2015

– the Deadline for Covered California –

http://www.coveredca.com/apply

  1. In case you get sick — measles, mumps, the flu, chicken pox or any other infectious disease.
  2. In case you get hurt — driving, fixing the house, at a rowdy Super Bowl party, exercising or just walking the dog.
  3. In case you get pregnant.
  4. In case you get really sick – cancer, heart attack, depression or stroke.
  5. In case you are not a billionaire and cannot afford to pay for all your medical bills out of your own pocket.
  6. To make your mom, dad, grandma, kids or siblings happy that you’ll be ok if something bad happens. To make your partner happy for Valentine’s Day.
  7. To get preventive care or a check up so you stay healthy.
  8. Because the next open enrollment is not until November 15, 2015 and you cannot just buy individual coverage any time you need it to pay your bills.
  9. Because you are likely to qualify for some help paying your monthly premiums and/or out of pocket costs (incomes up to $46,680 for an individual or $95,400 for a family of four).
  10. Because you don’t want to pay the penalty for being uninsured in 2015 – 2% of your income or $295 per year, whichever is more.

 

 

In Loving Memory

The 19th ITUP conference is dedicated in loving memory to Peter Harbage.

harbage

Where Are We Going: Where Should We Be Going?

The Affordable Care Act in many ways represented the triumph of Republican ideas (dating back to President Richard Nixon, Senator Bob Dole and ultimately enacted by Governor Mitt Romney), passed by a narrow margin with Democratic votes only and implemented amidst enormous partisan criticism and unparalleled scrutiny. It was not perfect in its inception or in its implementation, but it was a vast improvement on the status quo ante and a welcome step towards universal coverage after 100 years of trying. Like many new programs (remember the early challenges in California’s implementation of Healthy Families or the nation’s slow implementation of Medicaid), it will take at least five years to work out the bugs without any help/interference by Congress – an unlikely scenario. California has made enormous strides in implementation and in improved affordability, but we are likely to reach an enrollment plateau in the next two to three years.

First, we must do a better job of educating California’s public, which has been saturated with a stew of misinformation, inadequate information and accurate information and does not know what to believe. Most are still confused: how the ACA works, how benefits are accessed in their health plan, the value and importance of preventive and primary health care, the interplay between the costs of premiums, deductibles and copays, the tax implications of timely reporting income changes or of dropping health coverage, and the importance and opportunity of patient engagement to achieve healthier outcomes.

In this article, we will discuss next steps for California to consider towards a better system. ACA §1332 allows us to begin this effort with ACA waivers as soon as the year 2017; we need to begin the thinking now. Section 1332 allows states to waive any or all of the following: the Exchanges, tax credits, qualified health plan requirements, individual and/or employer responsibility. It allows for a consolidation of waivers for Medicaid, Medicare and CHIP; this offers a state an unparalleled opportunity to “get it right”. States must provide coverage that equals or exceeds the ACA, and the costs may not exceed what the federal government is already spending. What could California do – examples would be a modern hybrid of Medicaid, the Exchanges, CHIP and Medicare or a public option or a Basic Health Plan or single payer or consumer-directed coverage or aligned payment incentives and integrated care for all. Below we review needed changes in the major sources of health coverage for Californians.

 

Download the full document here: Where Are We Going

Indiana Expands Medicaid with a Hoosier Twist

CMS and the state of Indiana reached agreement on a waiver to expand the state’s Medicaid program from only mothers and children with incomes less than 25% of FPL to all eligible individuals with incomes under 138% of FPL. This is projected to add 350,000 uninsured Hoosiers to Medicaid.

The twist is that newly eligible individuals must pay premiums ranging between $3 and $25 a month for an individual (2% of income). For individuals with incomes less than 100% of FPL, if they do pay premiums, they will have dental and vision coverage. If adults do not pay premiums, they will have basic medical coverage, but no dental of vision coverage. For individuals between 100 and 138% of FPL, they must pay their premiums to get coverage. If they do not, they are locked out of the program for 6 months. This is a hybrid between the Exchanges and Medicaid.

Hospital reimbursement rates will be increased to Medicare levels (about a 25% rate increase).

Financing for the Medicaid expansion and rate increase will come from the federal government, an increase in the state’s tobacco tax and hospital fees. The state’s existing Healthy Indiana program that offers some coverage for 60,000 low income Hoosiers will be fully folded in.

National advocates were critical of the waiver to allow states to charge premiums to individuals with incomes less than the poverty level. Iowa currently charges $5 a month for individuals with incomes 50-100% of FPL and Michigan charges 2% of income to individuals with incomes 100-138% of FPL.

 

See http://www.wthr.com/story/27949852/pence-to-speak-on-health-care-policy; http://www.usatoday.com/story/news/nation/2015/01/27/feds-ok-indianas-medicaid-expansion/22433397/, and http://www.nytimes.com/2015/01/28/us/politics/indiana-will-allow-entry-to-medicaid-for-a-price.html

Open Letter Re: Exchange News and Tax Credits

Dear friends, family and neighbors,

There are three things happening that you need to know about: 1) open enrollment, 2) redeterminations and 3) reconciliation.

Open enrollment for the Exchanges (Covered California) will close by February 15, so if you want coverage for the coming year, you have to have your application completed and filed by then. If you miss that deadline you cannot enroll until next November 15 except for life change events (such as job changes, births, deaths, divorces, or moving to a new state) that cause you to lose other coverage and thus become Exchange eligible. The very same rules apply in the individual market outside the Exchanges. If it’s a life change event, act quickly; you only have 60 days to apply outside of open enrollment.

Redeterminations happen once a year, when you restate your income for the coming year and you can choose to change plans if you wish. Since the prices for plans changed, some went up and some went down, you want to carefully look at prices and plan networks to see if you want to keep your existing plan or change plans. The tax credits are pegged to the second lowest priced silver plan, so the difference between the plan you choose and the 2nd lowest price silver is used to calculate your tax credit and reduce your premiums.

If your income is between 138% of federal poverty level and 250% of federal poverty level (between about $16,000 and $30,000 for an individual, or $33,000 to $60,000 for a family of four) you can also get a tax credit to reduce your copays and deductibles, but only if you choose the silver plan. So if you are in that income range, your best choice is likely to be silver, otherwise you lose those credits reducing your copays and deductibles.

Reconciliation also happens annually. Reconciliation only happens for those who applied for and received tax credits to help pay their premiums and out of pocket copays and deductibles. When you applied, you projected your income for the 2015 calendar year to qualify for the tax credit. If it went down, you will get a refund, but you need to file your tax return to get it. If your income went up and you did not report the change, you will get a bill for the added amount you owe for the year. The IRS will be sending Form 1095 to report your tax credits and any amounts they owe you or you owe them.

Tax penalties for those who were uninsured during 2014 were $95 or 1% of income, whichever was higher; they will be due by April 15. In 2015, the penalties will go up to $325 or 2% of income. There are exemptions for reasons such as financial hardship or religious beliefs.

Numbers covered. The most recent projection I saw in the Governor Brown’s Proposed Budget for 2015-16 is that Covered California enrollment will reach 2 million and Medi-Cal will reach 12 million (an increase of 3.2 million due to the Affordable Care Act) during the 2015-16 time frame.

ITUP’s Experience. We just got our renewal rates from Covered California’s SHOP program for small business for the coming year, not only no increase but a small decrease despite the fact we are all one year older. A nice way to start 2015!

Hope this is helpful and Happy New Year,

Lucien

Governor’s Proposed Budget 2015-16 – ITUP Summary

Download the Full Summary Here: ITUP Summary of Governor’s Proposed Budget 2015-16

 

The Governor’s Budget proposes to spend $113.3 billion General Fund, a small increase from the prior year’s $111.7 billion General Fund. General Fund spending will grow by 1.7% or $1.6 billion.

General Fund Revenues will grow by 4.5%. Special funds will be $45.5 billion of which $20.5 billion will be for health and human services and $8.8 billion for transportation. Special funds are state tax revenues directed and dedicated to a particular purpose, such as the gas tax or motor vehicle fees for roads or the millionaire’s tax for mental health or a portion of the sales tax dedicated to county mental health and law enforcement.

Under the proposed budget, California will end the year 2014-15 with a $2 billion surplus and end the 2015-16 fiscal year with a $4 billion surplus. The proceeds will be used to pay down the state’s debt and finance the Rainy Day fund necessary to meet expenses in the next economic downturn.

Prop 2 allocates the volatile capital gains tax revenues to pay off debt and build the Rainy Day fund. The Governor’s proposed budget for 2015-16 would pay off $2.2 billion in debts and increase funding in the Rainy Day account to $2.8 billion.

K-12 education will be state funded at $50 billion – an increase of $2600 per student above 2011-12 levels.

Higher Education General Fund spending will grow by 8.6% or $1.1 billion.

Health and Human Services General Fund spending will grow by 4.7% or $1.7 billion. Medi-Cal enrollment is projected to grow to over 12 million subscribers of whom 3.2 million are attributed to the state’s implementation of the affordable Care Act, nearly all of these costs are paid by the federal government.

The state has about $226 billion in unfunded obligations, primarily for retiree pensions and retiree health benefits for state workers, teachers and UC staff. Over the last several years, the state has enacted pension reforms for state workers and retired teachers; this year budget proposes to tackle retiree health benefits.

ITUP Summary of Schoen et al, State Trends in the Cost of Employer Health Insurance Coverage (Commonwealth Fund, 2003-2013)

Click here for the full issue brief:
State Trends in the Cost of Employer Health Insurance Coverage, 2003-2013

 

For the last decade, health insurance premium increases rose three times as fast as worker’s wages. Between 2010 and 2013, the rate of premium increase slowed from 5.1% for the prior seven years to 4.1% for the past three years. Premium rate increases slowed to less than 4% in the neighboring states of Arizona, Oregon and Nevada but stayed higher than 5% in California.

Employee contributions towards the costs of their premiums nearly doubled in the last decade; their out of pocket copays and deductibles increased as well. Employees’ out of pocket costs (share of premium plus out of pocket) increased from 5.3% of household income in 2003 to 9.6% in 2013. Most of that growth occurred prior to 2010.

The slower growth in per member per month (pmpm) applied to both Medicare and private insurance. Medicare’s pmpm growth rates were 5.4% in 2008, 4.0% in 2009, 1.3% in 2010, 2.1% in 2011, flat in 2012 and 2013. Private insurance pmpm growth rates were 7.6% in 2009, 4.5% in 2010, 3.8% in 2011, 4.0% in 2012 and 2.1% in 2013. The reforms of the ACA may account for the slower growth in Medicare costs, but do not explain the slower growth in private employment based coverage, except possibly as radiating impacts.

California’s performance was not exemplary. Average employer costs per individual grew 5.1% nationally and 5.6% in California from 2003-2010; average employer costs per individual grew 4.1% nationally and 5.1% in California from 2010-2013. Average premiums as a percent of median household income grew from 15% in 2003 to 22% in 2010 to 23% in 2013. By comparison, Massachusetts grew from 13% to 16% to 18% over the same time frame. Minnesota’s (the top performer) pmpm premiums grew from 13% to 17% to 16% between 2003 and 2013.