Overview and Potential Effects
Doug Anderson, Esq.
Bailey Cavalieri LLC
10 West Broad Street, Suite 2100
Columbus, OH 43215-3422
Direct: 614.229.3301
Cell: 614.264-2773
Doug.Anderson@baileycavalieri.com
www.baileycavalieri.com

Affordable Care Act
Insurance Market Reforms
The key insurance market reforms:
1.
Guaranteed issuance of comprehensive benefits with rating restrictions
2.
3.
Personal responsibility to buy coverage
Low income subsidies to make coverage affordable
4.
Exchanges

Affordable Care Act
Exchanges
Statutory Requirement to Establish Exchanges
“Each state shall, not later than January 1, 2014, establish an
American Health Benefit Exchange . . . for the State. . . .”
If a State does not elect to establish an Exchange, then HHS
“shall establish and operate such Exchange within the State. . . “
42 U.S.C. 18031, 18041(c).

Affordable Care Act
Exchanges
• 16 States and the District of Columbia established
State operated Exchanges
• 34 States chose not to establish an Exchange, including Ohio, and defaulted to the federallyfacilitated Exchange

Affordable Care Act
Individual Mandate
Most citizens must obtain "minimum essential" coverage or pay a tax penalty.
If the required contribution towards coverage exceeds
8% of projected household income, the individual is not subject to the individual mandate penalty.
26 USC 5000A.

Affordable Care Act
Low Income Subsidies
Federal law provides for premium tax credits (aka, low income subsidies) for people between 100 and
400% of FPL.
26 U.S.C. 36B.

Affordable Care Act
Low Income Subsidies
The statutory tax credit language:
The "premium assistance credit amount" is the sum of the monthly premium assistance amounts for "all coverage months of the taxpayer occurring during the taxable year.“
26 USC 36B(b)(1).

Affordable Care Act
Low Income Subsidies
The statutory tax credit language:
A "coverage month" is one in which the taxpayer is covered by a qualified health plan “that was enrolled in through an Exchange established by the State under section 1131 of the ACA.
“
26 USC 36B(c)(2)(a)(i).

Affordable Care Act
Low Income Subsidies
IRS tax credit regulations:
The IRS adopted regulations making the tax credits available to qualifying individuals who enroll in coverage in any exchange, including state-run and federally-facilitated Exchanges.
26 CFR 1.36B-1(k).

Affordable Care Act
Low Income Subsidies
IRS tax credit regulations:
“Exchange” is defined to include any Exchange "regardless of whether the Exchange is established and operated by a
State . . . or by HHS."
26 CFR 1.36B-1(k); 45 CFR 155.20.

Affordable Care Act
Low Income Subsidies
During the rulemaking process, the IRS received the following public comments:
Commentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges.
77 Fed. Reg. 30378.

Affordable Care Act
Low Income Subsidies
The IRS response was as follows:
The statutory language of . . . [the Affordable Care Act] support the interpretation that credits are available to taxpayers who obtain coverage through . . . the Federallyfacilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges.
77 Fed. Reg. 30378.

Affordable Care Act
Low Income Subsidies
In 2014, tax credits were granted to qualifying taxpayer who enrolled in coverage in any state or federal Exchange.

Affordable Care Act
Low Income Subsidies
Reduction in Average Monthly Premiums from Advance Premium Tax Credits (APTC)
Description
Number of
Individuals
Selecting 2015
Plans Through the
Federal
Marketplace
Percent of
Plan
Selections with APTC
Average
Monthly
Premium before APTC
Average
Monthly
APTC
Average
Monthly
Premium after APTC
Average
Percent
Reduction in
Premium after APTC
All States using
Heathcare.gov
Platform
8.84 million 87% $364 $263 $101 72%
Source: ASPE computation of CMS data for 37 states using the HealthCare.gov platform as of 2-15-15
(including SEP activity through 2-22-15).

Affordable Care Act
Low Income Subsidies
Description
Availability and Selection of Plans With Monthly Premiums of $100 or Less
After the Advance Premium Tax Credit (APTC)
Number of Individuals With
2015 Plan Selections
Through the Marketplaces
Could Have Selected a Plan with a Monthly Premium of
$50 or Less after APTC
Could Have Selected a Plan with a Monthly Premium of
$100 or Less after APTC
Total Number of
Individuals With 2015 Plan
Selections
Individuals With 2015 Plan
Selections With APTC
8.84 million
7.65 million
66%
77%
77%
89%
Source: ASPE computation of CMS data for 37 states using the HealthCare.gov platform as of 2-15-15
(including SEP activity through 2-22-15).

Affordable Care Act
Low Income Subsidies
Total Marketplace Eligibility Determinations in
States using the Federal Exchange 2015
State Name
Total Eligible to Enroll in a
Marketplace Plan
Eligible to Enroll in a
Marketplace Plan with
Financial Assistance
Ohio 279,722 (100%) 229,459 (82%)
Source: ASPE computation of CMS data for 37 states using the HealthCare.gov platform as of
2-15-15 (including SEP activity through 2-22-15).

Affordable Care Act
Low Income Subsidies
Description
Ohio
All States using
Federal Exchange
Marketplace Plan Selections by Financial Assistance Status in States Using the Federal Exchange
Total Number of Individuals With
2015 Plan Selections
234,341
With
Financial
Assistance
84%
Without
Financial
Assistance
16%
With APTC
(non-add)
With CSR
(non-add)
84% 44%
8,838,291 87% 13% 87% 60%

King v. Burwell




Plaintiffs are Virginia residents.
Virginia has a federally facilitated exchange.
Without a tax credit, plaintiffs would be exempt from the individual mandate penalty because coverage would not be affordable.
With the premium tax credit, coverage is affordable, subjecting the plaintiffs to the penalty.

King v. Burwell
Plaintiffs filed suit in federal court claiming:


 the IRS rule is invalid. the IRS exceeded its authority and acted contrary to the law.
the plain language of the ACA limits the tax credits to exchanges “established by the State under 1311 of [the ACA]”.

King v. Burwell
A "coverage month" is one in which the taxpayer is covered by a qualified health plan “that was enrolled in through an Exchange established by the State under section 1131 of [the ACA].
“
26 USC 36b(c)(2)(a)(i).

King v. Burwell
The Government argued:
Under the ACA, tax credits work in concert with the market reforms and coverage mandate to achieve the ACA’s goal of expanding health insurance coverage and promoting a functioning insurance market in each state.

King v. Burwell
The Government argued:
The definitional and other provisions of the
Act . . .demonstrate that the Act treats an
Exchange established by HHS in a State’s stead as an Exchange “established by the
State.”

King v. Burwell
District Court decision:

The ACA as a whole evinced Congress’s intent to make the tax credits available nationwide.


The District Court granted the government’s motion to dismiss.
The plaintiff’s appealed.

King v. Burwell
The Court of Appeals:
The Court applied a two step test for reviewing the IRS Rule:
1.
If the statute is clear and unambiguous, that is the end of the matter, and the court and IRS must give effect to the unambiguous statute.

King v. Burwell
The Court of Appeals:
A reviewing court should not confine itself to examining a statutory provision in isolation.
Meaning of words or phrases may only become evidence when placed in context.

King v. Burwell
The Court of Appeals:
2.
If a statute is ambiguous, meaning it is subject to more than one interpretation, is the agency’s action based on a permissible construction of the statute?

King v. Burwell
Court of Appeal’s Decision
 The requirement that each state is to establish an exchange must be considered in light of the fact that the ACA provides the federal government may establish an exchange within a state.
 All exchanges are to report information to the IRS regarding premium tax credits, which indicates
Congressional intent that credits are available in all exchanges.

King v. Burwell
Court of Appeals:



We find that the applicable statutory language is ambiguous and subject to multiple interpretations.
Applying deference to the IRS's determination, however, we uphold the rule as a permissible exercise of the agency's discretion.
We thus affirm the judgment of the district court.
759 F.3d at 363.

King v. Burwell
Court of Appeals:
“ the court is of the opinion that the defendants have the stronger position, although only slightly.”

King v. Burwell
Contrary court decision:
In Halbig v. Burwell , the DC Court of
Appeals ruled the IRS regulation should be struck down and subsidies limited to state exchanges.

King v. Burwell
On November 7, 2014, the U.S. Supreme Court accepted the King v. Burwell case for review.

King v. Burwell
The Supreme Court will answer the following question: whether the Internal Revenue Service (IRS) may promulgate regulations to extend tax-credit subsidies to coverage purchased through
Exchanges established by the federal government under section 1321 of the Patient Protection and
Affordable Care Act.

King v. Burwell
Issues the Supreme Court will consider:
1.
The plain text of the specific provision v. the overall structure of the ACA?
2.
3.
Did Congress intend to defer to the IRS on this very important issue?
The impact that striking down the subsidies will have on insurance markets: will it wreck the whole ACA?

King v. Burwell
Likely in favor of upholding the IRS rule:

Breyer, Sotomayor, Ginsburg, and Kagan
Likely in favor of striking down the IRS rule:

Alito, Scalia and Thomas
The wild cards:

Roberts and Kennedy

King v. Burwell
Justice Roberts:

Not shown a preference for either side’s argument.

In the past, has signed off on opinions looking at legislation in context, with consideration of legislative history.

Usually rules with the more conservative justices.

King v. Burwell
Justice Kennedy:

Has not taken a side in this case.

In oral arguments, did raise constitutional questions about whether Congress could coerce states into establishing exchanges with the threat of withholding subsidies to residents.

It is not really clear where he stands.

King v. Burwell

5 Justices are needed for a majority.

If either Roberts or Kennedy go with the 4 liberal justices, the IRS rule will be upheld.

A decision will be issued by the end of June.

King v. Burwell
Legal impact of a ruling to strike down rule

The tax credit would not be available in 34 states that have not established state exchanges


Any future rule by the IRS would need to limit tax credits to state-operated exchanges.
It is unclear whether past tax credits (for 2014) would need to be repaid.

King v. Burwell
Legal impact of a ruling to strike down rule

Cost sharing subsidies would not be available because they are predicated on eligibility for premium tax credits.

Employers would not be subject to the employer mandate penalty because the penalty is predicated on at least one employee getting premium or cost sharing subsidies through an exchange.

King v. Burwell
Legal impact of a ruling to strike down rule

Individuals enrolled in coverage with low income subsidies would have special enrollment rights, and could change plans within the 60 day special enrollment period

King v. Burwell
Secondary effect of a ruling striking down the IRS rule


Many people would no longer be subject to the individual mandate because coverage would not be affordable without the subsidies.
An estimated 8 to 10 million people will drop insurance. (Up to 225,000 in Ohio).

The mix of people being insured will change, making the insurance pool less healthy, causing average claims and premiums to go up.

King v. Burwell
Secondary effect of a ruling striking down the IRS rule

Estimates are the premium rates for people previously with tax credits would rise on average by 350%

The cost of individual coverage will increase for everyone (on and off the exchange) by between 5 and 45% (depending on the estimate).

King v. Burwell
Secondary effect of a ruling striking down the IRS rule

Insurance companies would be required to revise rates for 2015 and 2016 in order for such rates to be actuarially justified.
–
–
2015 rates were filed last year and it is unclear whether regulators would allow rates to be changed in the middle of a plan year.
2016 rates were filed last month, and are still under review by ODI, with an opportunity for revision.

King v. Burwell
Secondary effect of a ruling striking down the IRS rule

Large employers may reassess the benefit plans they offer, and the efforts made to ensure compliance.

King v. Burwell
Mitigation Efforts if the IRS rule is struck down.



It may cause the President and Congress to come to the negotiating table.
Congress and the President could come up with an alternative solution so tax credits do not disappear immediately.
It could create an opportunity for compromise on a number of issues.

King v. Burwell
Mitigation Efforts if the IRS rule is struck down.
The IRS might “deem” the 7 states that have federal/state partnership exchanges to be
“established by the states”. This, however, could face a legal challenge.

King v. Burwell
Mitigation Efforts if the IRS rule is struck down.
States might opt to establish and operate their own exchanges

This may be politically difficult and unpopular


The ACA funding to establish state exchanges is no longer available
Establishing a new exchange takes at least a year and significant financial resources

King v. Burwell
Mitigation Efforts if the IRS rule is struck down.
States might declare an intent to establish an exchange, identify a state agency that will serve as the state’s exchange, and then have the state agency contract with HHS to have the federal exchange perform all exchange functions as a subcontractor.

This may be politically difficult and face legal challenges.

King v. Burwell
State Innovation Waivers may be accelerated
For plan years beginning on or after January 1,
2017, states may apply to HHS to waive various requirements of the ACA, including:
1.
2.
3.
4.
Benefit and subsidy requirements
Exchange and QHP requirements
Premium tax credits
The employer and individual mandates

King v. Burwell
The Supreme Court will issue a decision by June 30,
2015.

Doug Anderson, Esq.
Bailey Cavalieri LLC
10 West Broad Street, Suite 2100
Columbus, OH 43215-3422
Direct: 614-229-3301
Cell: 614-264-2773
Doug.Anderson@baileycavalieri.com
www.baileycavalieri.com