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Another Obamacare Catch-22: Break The Constitution Or Subsidize Insurance Premiums


Violating the U.S. Constitution could save federal taxpayers more money than stopping illegal Obamacare payments to health insurers, according to a new report illustrating the cronyism of the Affordable Care Act (ACA).

A new Kaiser Family Foundation (KFF) report reveals a lose-lose Obamacare proposition for Americans: continue to make unconstitutional payments to insurers, or halt the unlawful payments and make up for them by paying higher premium subsidies.

Here is how this shell game works (or, more appropriately, breaks).

The ACA’s Unconstitutionality Could Cost Us All

ACA requires health insurers to offer reduced copays and deductibles to Obamacare Silver Plan customers with incomes 100 to 250 percent of the federal poverty level, i.e., incomes up to $61,500 for a family of four.

To help insurers afford these discounts, federal taxpayers make cost-sharing reduction (CSR) payments to insurers. These payments will cost $7 billion in 2017, $10 billion in 2018, and $16 billion in 2027, according to a Congressional Budget Office report quoted by KFF’s April 25 Issue Brief, “The Effects of Ending the Affordable Care Act’s Cost-Sharing Reduction Payments.”

Federal District Judge Rosemary Collyer ruled CSR payments unconstitutional in May 2016 because Congress never made an appropriation for them. Article I, Section 9, Clause 7 of the U.S. Constitution reads, in part, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” In the Court’s opinion, Collyer wrote, “The Affordable Care Act unambiguously appropriates money for Section 1401 premium tax credits but not for Section 1402 reimbursements to insurers” (emphasis added). Thus, CSR payments are unlawful.

If Payments Stop, Premiums Will Skyrocket

The Court allowed CSR payments to continue while the Obama administration appealed the ruling. President Donald Trump has yet to drop the appeal. CSR payments will stop if the Trump administration drops the appeal or if the courts uphold Collyer’s ruling.

If CSR payments stop, insurers won’t just absorb the revenue reduction. Instead, insurers that continue to sell plans on the Obamacare exchanges would raise insurance premiums—which taxpayers subsidize per Section 1401 of ACA (referenced above).

KFF estimates insurers will increase Obamacare Silver Plan premiums by more than 19 percent in 2018 if CSR payments stop. Premiums would rise slightly less in states that have expanded Medicaid under ACA than in non-expansion states, according to KFF. This is because Medicaid expansion added to the state rolls hundreds of thousands of able-bodied people earning 100 to 138 percent FPL, who would otherwise have qualified for reduced Silver Plan copays and deductibles.

Obamacare Hurts Americans, Whether They Comply or Not

Taxpayers would pay for the premium hikes, in the form of paying higher premium subsidies, which ACA awards insurers of households with incomes of up to 400 percent FPL, or $98,400 for a family of four. As KFF states:

Any systematic increase in premiums for silver marketplace plans (including the benchmark plan) would increase the size of premium tax credits. The increased tax credits would completely cover the increased premium for subsidized enrollees covered through the benchmark plan and cushion the effect for enrollees signed up for more expensive silver plans.

Consequently, hikes in insurance premiums and subsidies prompted by stopping CSR payments could cost taxpayers an extra $2.3 billion in 2018, growing to $31 billion in 2027, the study concludes.

As the KFF study authors note, their model assumes at least one health insurer per county in the United States will continue to sell Obamacare plans in the event Trump or the courts halt CSR payments. This is a big assumption, considering mega health insurers Aetna and Humana were the most recent to pronounce Obamacare exchanges too risky and expensive—despite receiving taxpayer subsidies on all sides.

Obamacare has surely run its course when it damns Americans whether or not they comply with it.

Is There Another Way Out?

A third option is replacing Obamacare with a law that places health insurers at the margins of the health care system, instead of its center. If taxpayer subsidies for health care-related expenses are a must, they would stretch farther in the pockets of patients themselves—including Medicaid patients—instead of going straight to insurers.

Thus equipped, 126 million U.S. households could choose for themselves which health care and insurance options offer the greatest value: whether that is a costly Obamacare insurance plan, a so-called catastrophic plan banned by ACA, or a direct-pay alternative to insurance promoted by The Heartland Institute and other libertarian think tanks.

The Constitution may just barely allow for a system in which Americans tell lawmakers what kind of health care and insurance they want, instead of vice versa.

A version of this essay ran as the Consumer Power Report, Issue #543, on April 25, 2017.