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Seth Chandler, who teaches at the University of Houston, delivered an insightful speech to a group of insurance professionals about the future of the ACA. Seth’s main point is that the results from the first two or three years of the ACA must be taken with an entire salt mine (a grain is not nearly enough).

The ACA takes a bold risk.  It places our economy and our health on an metaphorical aircraft whose ability to fly is challenged by history. It proceeds on the assumption that, whereas almost all community rating systems in health insurance have crashed in ugly adverse selection death spirals, the craft engineered by the Obama administration and its consultants is so sophisticated that it will avoid such a fate.  Many will tout what they see as the success of the ACA thus far in reducing the number of uninsured and the absence of many catastrophic failures as evidence that the ACA flies.  But we have not seen turbulence. It is an open question whether, long term, the ACA can survive in its present form.

Seth addresses five aspects of the law that are keeping the regime afloat, that will either phase out, or disappear in the next few years. As these dominos fall, so too may the ACA.

First, beyond the tax subsidies everyone knows about in King v. Burwell, the insurers are receiving so-called “cost sharing reductions.”

Every insurer that I know of is accepting payments from the federal government for cost sharing reductions.   But those payments are almost certainly illegal. Congress never appropriated any money for Cost Sharing Reductions.  So, under the law as written, insurers who want to play in the Exchanges are really supposed pay for cost sharing reductions themselves.

Of course, to my knowledge, that’s not happening. The money now landing in insurer’s bank accounts is coming from a fund set up for tax refunds that is, by law, dedicated exclusively to that purpose.  That, I believe is unlawful and, should another party ever control the Executive branch and want to look for a villain or want to extort various favors from someone whom they have over a barrel, might it not chase insurers for receipt of diverted funds?

If a Republican wins the White House, expect them to clean house, and cease all of the illegal Obamacare subsidies that are being payed out by the administration. (This may be the subject of yet another book on the topic).

Second, reinsurance subsidies disappear after 2016, causing premiums to go even higher.

How much support does it provide? If you use the data from the2016 draft actuarial value calculator produced by CMS, you can compute that the subsidy will still be about 3% of premiums for 2016.  It was higher in 2014 and 2015. How will the ACA continue when prices increase at least 3% more just due to the elimination of this single subsidy.  The naive might think that 3% is not all that much.  And, without taking adverse selection into account, I would expect the market to shrink only by about an equal percentage.  But if history and economics tells us anything — and it does — because of adverse selection, the actual price increase will be greater and the resulting decline in enrollment will be greater.

Third, the risk corridors, which are keeping the insurers afloat, are based on voodoo math that will also likely end after 2016.

Insurers may not have to wait until 2017 for Risk Corridors to disappear.  They are already in grave trouble.  Congress also never appropriated any money for Risk Corridors. And this wasn’t an accident. The statute, as written, depends on assessments on insurers based on a formula to magically equal payments out to insurers based on a formula over the 3-year span of the program.  We are already seeing, as many predicted, however that such an assumption was unwarranted.  Due perhaps to loss leader pricing and the predictable propensity of consumers to pick precisely those plans that were charging too little relative to actuarial risk, it appears that, on balance, at least after what I would hope would be clever but lawful accounting, that few insurers are making enough money under Obamacare policies to provide any funding to the many insurers who gained volume at the expense of profitability. So, when the Obama administration suggested it might lawlessly raid other government accounts to fund Risk Corridor deficits, Congress responded in section 227 of the Cromnibus bill by walling off the plump Medicare Parts A and B trust funds and CMS operating accounts as a source to repay obligations created by the Risk Corridor program.

Fourth, due to all the waivers from the individual mandate, far too many people are exempted from the requirement to buy insurance who cannot afford to buy Obamacare–even with the subsidies.

Alternatively, eliminate $3,000 from the person’s income. Now, because the premium the individual would have to pay is more than 8% of household income, the individual is exempt from the individual mandate. There are a significant number of uninsured people thus exempted from the mandate on grounds that they are simply too poor to purchase Obamacare.

But there’s more to make sure, as the CBO recently confirmed, that only one in six of the uninsured will actually be subject to the mandate.  There is the absurdly expanded hardship exemption. There’s the health sharing ministry exception mostly for evangelical Christians. And there’s the peculiar 3 months off exemption (26 USC § 5000A(e)(4)).

Fifth, the employer mandate is “stupid” and in fact dangerous.

Another key component of the ACA has been the employer mandate.  Or, at least it was supposed to be a key component.  In fact, in what a lot of people, including me, think is a very dangerous precedent that will, one day, bite ACA proponents in the proverbial behind, the Obama administration simply decided, without any apparent discretion, to delay enforcement of the law for one year and, for the current year, to apply the statute only to employers with more than 100 employees, even though the number the statute picks is 50. If a change to the tax code is so complicated that it takes mid sized businesses with financial advisors 5 years to understand it,perhaps that’s a sign there is something more fundamentally wrong.

Chandler concludes that the measure of the ACA’s success is not only how many people gain insurance, or even whether it increases care, but what is the cost of accomplishing this goal.

One’s perspective on the ACA can’t be whether it helps insurers or whether it helps the medical profession.  In fact it shouldn’t even be on whether more people have health insurance.  The positive factor to be considered is whether it has improved health.  I will concede that, on balance, it probably has — slightly. Many medical interactions are beneficial and, although supply of medical practitioners has not increased much, there are 2-4% more such interactions thanks to the ACA.   In any event, whether the ACA marginally improves health is not the exclusive test.  These programs have to be paid for and they come at a heavy price.  TheCBO now estimates the ACA will increase our budget deficit by $849 billion dollars through 2026. It is not, contrary to prior representations, paid for.

As I’ve noted many times (and will develop in my book), the President spiked the proverbial football way too early on the ACA, by extolling how many new insured Americans there are. All of the benefits, and subsidies to fund those benefits are front-loaded. But in order to be scored budget neutral by CBO (a farcical process in light of all the myriad delays and waivers), the costs of the law are backloaded towards 2020. Key among these, which Seth didn’t mention here, was the dreaded “Cadillac Tax.” We will feel the pain of this law well past the expiration date of the Obama Presidency.

A question that has been on my mind quite a lot, of late, is whether the pain of 8 million losing their subsidies this year by a decision in King v. Burwell will be greater or less than the pain felt by two-hundred million Americans in 2018 when the full force of this law comes into effect. As Jeffrey Toobin, the WSJ editorial board, and Christopher Flavelle have noted recently, it is not abundantly clear that Republicans will be the losers on this decision if people understand what is coming down the pike, and how that future may be averted.

On Friday I appeared on Houston Public Radio’s excellent program, “Houston Matters,” for a discussion on campus free speech. The program focused on a student at Blinn College in Texas who was told she could not hold up a sign that said “Support Gun Rights” without seeking permission in advance. Shockingly, a school administrator and three armed guards told her that she could not hold up her sign, and that she would probably not be able to obtain permission to do so. Even worse, she was told she needed permission to hand out a pamphlet about Miranda rights. FIRE filed a suit, challenging the constitutionality of this act.

I was joined on the radio with Will Creeley, who represents the student at FIRE.

You can listen to the audio here. One point, that I stress over, and over again:

For everyone in the reach of my voice, let me say this very clearly. Offensive speech is protected by the Constitution. The mere fact that speech makes you offended, or “unsafe” as the millenials say today, does not deprive it of First Amendment value. And if you are in a public university, and you want to post a symbol that offends people, you have the right to do that. And if the school takes action to censor it on the basis of the content, they are violating the First Amendment of the United States Constitution.

I can’t repeat this message enough.

At the Houston Astros game on Saturday, my row was selected to win a coupon to Whataburger (a Texas burger chain) and appear on the big screen during the 7th inning stretch while “Deep in the Heart of Texas” was playing. If Texas ever secedes, I’ll use this as proof of citizenship.

 

I’m wearing the grey shirt, not with sunglasses, in the middle. Ted Frank is standing next to me (red hat), trying to take a Jumbotron selfie. And to boot, the pitcher threw ten strike outs so everyone in the stadium got a $3 off coupon at Krogers for Nolan Ryan Beef.

Today on MSNBC, via WSJ, White House Domestic Policy Director Cecelia Munoz offered these comments about the timing of the appeal in Texas v. United States.

We think that the case that we’re arguing in July may ultimately get to the Supreme Court. The challenge is that if we were to appeal this stay, the decision that happened this week, one way or the other, whether the government won or lost, we would still have this other argument to make and people would not have the certainty they need in order to benefit from this program. So this is about making sure that we are fighting vigorously, winning the case on the merits, so that when the time comes that we’re implementing this program, people can be sure that it’s not going to get further entangled in litigation.

In other words, even if SCOTUS granted a stay, aliens would be afraid to sign up if the Court would ultimately reverse on the merits. Last night I blogged that the President effectively threw in the towel by not seeking a stay. I think this comment–no doubt intended to assuage the immigrant community–confirms my hypothesis. Whether or not SCOTUS granted a stay–allowing DHS to implement DAPA while the appeal is pending–there is no way this policy goes into effect before President Obama leaves the White House. For one reason, there simply won’t be time for POTUS to implement DAPA in the waning days of his Presidency. But more importantly, aliens would be wary of signing up now (if a stay was granted) if the 5th Circuit, or even SCOTUS, ruled against the federal government on the merits. Further, anyone who signs up in the end of 2016 may fear a Republican President could use that information against them. This was always the danger of deferred action in the absence of a statute. The next President can reverse it with the stroke of a pen.

But if this is the right argument, why bother seeking a stay from the 5th Circuit? Why wouldn’t they simply have appealed Judge Hanen’s ruling? This would have been a smarter choice, but it is likely that political pressure prevailed.

 

 

In case you didn’t have your executive power fill for the week with the 5th Circuit’s decision in Texas v. U.S. (I surely haven’t!), today D.D.C. held arguments in House of Representatives v. Burwell. Since there is no transcript available (please send it to me if you have it), I can only go on press accounts. The AP, Reuters, and National Journal suggest that Judge Collyer will not dismiss the suit, but is skeptical about standing.

But what stood out was how Judge Collyer beat up the DOJ lawyer for dealing in a fantasyland. In their briefing–like in other inaction-related cases–the government barely addressed the merits, and insists that because there is no standing, there’s no reason to even discuss the constitutional violations. This has been the Obama playbook–which collapsed in Texas.

Here is a smattering of quotes.

Reuters:

“So it is your position that if the House of Representatives affirmatively voted not to fund something … then that vote can be ignored by the administration, because after all, no one can sue them?” she asked.

McElvain argued that the merits of the case were not being discussed at the hearing, and that any perceived injury was “abstract.”

“I’m not asking you to give me your brief. I want you to explain … why it’s not an insult to the Constitution?” Collyer said.

McElvain argued that the House could pass new legislation if it disagreed with the administration’s changes, which he said were legal under “pre-existing permanent appropriation.”

At another point, Collyer admonished McElvain: “You can’t just shake your head and not deal with the question.”

AP:

A skeptical federal judge grilled Obama administration lawyers Thursday over the House GOP’s health care lawsuit, sounding unlikely to side with the president and dismiss the case.

“You don’t really think that, do you?” U.S. District Judge Rosemary Collyer asked Justice Department attorney Joel McElvain in the opening moments of his argument, as he tried to assert that the House hadn’t suffered a particular injury from Obama’s health care law and therefore lacks a basis for suing.

“I have a very hard time taking that statement seriously,” Collyer said. At other points she chided McElvain for his responses, saying “You are dodging my question” and “You may disagree with me but I happen to be the judge.”

National Journal:

McElvain opened his argument by describing the House’s objections to the Obamacare rules by calling it an “abstract dispute over the implementation” of federal law, and the House therefore had no standing.

Collyer responded by saying, “You don’t really think that.” She later added, “This is the problem I have with your brief—it’s just not direct, you have to address their arguments.” She did acknowledge more than once that she was tougher on the administration’s lawyer.

National Law Journal:

When DOJ’s Joel McElvain urged Collyer to dismiss the case on the basis that the House had no standing in an “abstract dispute” over legislative power, Collyer shot back.

“You don’t really think that,” the judge said, setting the tone for the rest of McElvain’s argument on behalf of the Department of Health and Human Services.

The case, as Collyer saw it, was over “how close have the secretaries [of HHS and Department of Treasury] come to the bone of the House’s authority” to appropriate funds under Article I, Section 9 of the Constitution.

McElvain maintained throughout the argument that the administration funded the insurance subsidies through a general appropriation. But even if the House’s allegations of unappropriated funding were true, he argued, the House must resolve its dispute through the political process rather than in court.

Nothing McElvain said seemed to satisfy Collyer’s doubts that the case is “merely a dispute over implementation rather than an insult to the Constitution.” She called the administration’s argument at times “circular,” “not direct” and “dodging the question,” and politely dressed down McElvain after he shook his head in disagreement as the judge explained her sense of the case.

“You can disagree with me but I happen to be the judge,” Collyer said.

Read more: http://www.nationallawjournal.com/id=1202727658915/House-Obama-Administration-Clash-Over-Health-Care-Law#ixzz3bTJ7mA00

You get the picture.