What Executive Action can HHS Secretary Employ During Phase 2?

March 14th, 2017

The proposed repeal-and-replace process reminds me of a classic South Park episode, wherein the underpants gnomes would steal people’s underpants. Why?  Their business plan was simple.

  • Phase 1: Collect Underpants
  • Phase 2: ?
  • Phase 3: Profit

The AHCA repeal effort follows this plan, literally and figuratively.

  • Phase 1: Use budget reconciliation to enact the American Health Care Act
  • Phase 2: Use yet-unspecified executive action to stabilize markets
  • Phase 3: Repeal the remainder of the ACA with 60 votes in the Senate, and replace it with something else

Like Tom Cotton, I am doubtful that there are enough votes in the House for Phase 1, and am extremely doubtful that there are 60 votes (let alone 51) in the Senate for Phase 3.

To that end, I will focus on Phase 2. Specifically, what sorts of executive action could Secretary Price take, whether those actions would be lawful, and whether anyone would have standing to sue. I apologize in advance for the broken record, but the Obama Administration has already set the precedents for Price to take a whole host of (illegal) executive actions that could immediately alleviate burdens imposed by the ACA.

First, Secretary Sebelius suspended both the individual and employer mandates for millions of Americans and businesses. These actions were completely illegal, and amounted to a failure to faithfully executive the law. Secretary Price could now do the same, on a much larger scale. Everyone who asserts a hardship because of the rising costs of health insurance could now be granted an exemption. Only fools would pay the penalty! Efforts to challenge Sebelius’s suspensions have failed in court. Under these precedents, it is unlikely anyone would have standing to stop Price’s changes. Frankly, I am not too concerned about these actions, because Phase 1 (AHCA) would repeal both mandates in full, so there is little reason to employ further executive action on this front. So those mandates are out. (If we never get to Phase 1, then this option becomes much more attractive).

Second, a far more potent area for executive action concerns the Essential Health Benefits (EHBs). The ACA specifies that EHBs must be “equal to the scope of benefits provided under a typical employer plan, as determined by the Secretary.” As Nick Bagley points out, there may be some flexibility about how the Secretary can define “typically,” but there is another constraint in the statute: the Chief Actuary of CMS (who is not a political appointee) must sign off on the recommendations. Further, even if the Actuary signs off (unlikely), any such changes would have to be made through the cumbersome notice-and-comment process. Various groups could file administrative challenges to the rule-making, which would hold it up forever.

There is a much more potent approach: Price can do what Sebelius did before, and simply decline to enforce the mandates. The if-you-like-your-plan-you-can-keep-you-plan administrative fix allowed insurance companies to continue selling otherwise void plans, that do not cover EHB. How? HHS simply announced  that it would never make the finding that non-compliant plans are being offered. As I discuss in Unraveled, this decision was completely illegal:

Traditionally, states were responsible for regulating their own insurance markets. The federal government could not force, or commandeer, the states to implement Obamacare. As a result, the ACA gave states two choices. First, each state could voluntarily enforce these eight requirements within its borders. Second, if a state declined, HHS must enforce the requirements in its place. The statute provides that if HHS makes a “determination” of nonenforcement by a state, “the Secretary shall enforce” the eight requirements. Under the ACA, states were given the first opportunity to enforce the mandates, but if they declined, HHS would do it for them. In West Virginia, neither would happen. . . . The statute provides that HHS “shall enforce” the eight requirements – shall means must. President Obama told HHS not to enforce the requirements, even if a state failed to do so, because it resulted in the cancellation of plans.

Here is how the SG described the policy in a recent brief:

To avoid that result, HHS announced a transitional policy under which it would not enforce certain ACA requirements against health insurance issuers in the individual and small-group markets that continued to offer coverage that would otherwise have been can- celled because it did not comply with those requirements, provided that the issuers met certain conditions. Pet. App. 183a-187a. HHS encouraged States to adopt the same transitional policy, but each State remained free to decide whether to enforce the relevant ACA requirements. Id. at 187a.

By never making the determination that non-compliant plans were being offered, HHS effectively suspended the EHB mandate. It was entirely illegal. (See Nick Bagley’s analysis in the New England Journal of Medicine). West Virginia challenged this action in court. The D.C. Circuit dismissed the case on standing grounds, finding that the state suffered no injury. Like with many of President Obama’s benevolent suspensions that alleviated burdens, courts found no standing.

Alas, using this precedent, Secretary Price can likewise decline to enforce the EHBs–but to a much greater extent. Instead of allowing old, non-grandfathered plans to be sold, the Trump Administration can tell insurance companies that they can sell entirely new thrifty plans that do not cover all EHBs. Why? There is a hardship due to the lack of plans on the exchanges, and HHS determined that selling additional plans are essential as a transitional policy to stabilize markets. Whatever.

There is one wrinkle to this plan. West Virginia’s petition for certiorari is currently pending before the Court, and after a call for a response, the SG filed a BIO  (I think this is the first brief the Trump Administration has filed in support of Obamacare). The case should be up for conference in about three weeks or so. Perversely, a ruling for West Virginia here would enable other liberal states to stop Trump’s executive action with respect to the ACA. More generally, it would bolster the notion of state standing–the virtues of which California and Washington have recently re-discovered. This could gin up four votes for cert that were lacking before. One caveat: Price’s executive action would only work in the states that decline to enforce their own markets. Most liberal states, which enforce their own markets, would not be injured by this change. Perversely, the states most likely to disfavor the policy would be least able to challenge it in court.

There may be one additional ground for standing though. If small insurers decide to sell plans that do not provide EHB, other insurers in the marketplace may file suit, based on what is known as “competitor standing.” That is, competitors are injured because the government is failing to faithfully execute the law, thus creating an unfair marketplace. That would put the legality of the fix front-and-center. I am doubtful any insurer would risk such a suit, because they all benefit from this illegal largesse. All of the insurers will continue selling non-compliant plans under the administrative fix, which was recently extended till 2018. Secretary Price would likely face few, if any legal obstacles to using this plan.

There is a third executive action, that has (likely) already begun: the payment of cost-sharing reductions. Recall that last year, D.D.C. found that the Obama administration was spending money that was never appropriated, in the form of cost-sharing reductions. There is a worthwhile debate about whether the House of Representatives has standing, but much less debate about whether the payments are legal. (I think it is an open-and-shut case of appropriations law, but I’ll defer that discussion in this post). Leading up to the inauguration, I pondered whether the Trump Administration would cease making these payments. After all, the Donald is not afraid to stiff people on bills.

As best as I can tell, the illegal payments have continued. I cannot find any evidence that the monthly payments are being made, but I am certain that if they were not being made, the insurance industry would be crying foul. Here, the dog didn’t bark. In all likelihood, the Trump HHS has already continued one of the most flagrant violations of law that was begun by the Obama Administration.

I had sincerely hoped that after eight years of lawlessness from the Obama administration, the new government would have a stronger commitment to the rule of law and the separation of powers. Phase 2 will serve as a the test of how deep that commitment is.