I Thought the ACA was Built on the Individual Mandate. I Was Wrong.

Sometime in the next five weeks, the Supreme Court will decide the fate of the Affordable Care Act (again). The case, California v. Texas, challenges the constitutionality of the individual mandate. If it is deemed unconstitutional, the Court must then determine whether the mandate can be cleanly severed from the rest of the law or if the entire ACA falls with it. 

While this is an important challenge to the law, my impression following last fall’s oral arguments is that even if the Court finds the mandate unconstitutional, the bulk of the law will survive. But the Supreme Court striking the individual mandate? That seems quite possible.

2009 me would have been terrified by this potential outcome.

2021 me is more…meh.

In 2009, I was on the small team of U.S. Senate staffers working to merge the bills passed by the Senate Finance and HELP Committees into one piece of legislation that could garner the votes of all 60 Democratic Senators in order to overcome a Republican filibuster. When that bill was was brought to the Senate floor, briefing materials I wrote for the Democratic caucus declared that the individual mandate was “essential to keep the cost of health insurance premiums affordable.” 

Without a mandate to purchase health insurance, we reasoned, the ACA’s Marketplaces would face adverse selection – older, sicker individuals most likely to use health care services would purchase insurance, while younger, healthier people wouldn’t. This, we were told, would lead to a death spiral. (Not to be confused with death panels, which, to be clear, never existed). 

With the benefit of hindsight, I think those of us working to craft the ACA can be forgiven for this overemphasis on the individual mandate. After all, nearly every health care economist touted the mandate’s necessity. The State of Massachusetts, the coverage expansion experiment on which the ACA was modeled, used a mandate. Even among those opposed to the mandate, no one suggested it wasn’t needed to prevent a death spiral; their opposition rested on personal freedom arguments.

As the final bill came together, the individual mandate felt, to many of us, like the bedrock upon which the law’s promise of improved access to affordable, comprehensive health insurance was built.

And then it was gone. Effective in 2019, Congress reduced the individual mandate penalty to $0. (Technically, the mandate still exists, leaving a confusing situation in which purchasing health insurance is legally required but there is no penalty for not doing so, and a convenient hook for the Texas legal challenge.) This effort came after many failed attempts to repeal the whole ACA; if they couldn’t dismantle the entire thing, congressional Republicans would chip away at the foundation on which the law was built, until it crumbled under its own weight.

Except that it didn’t. Despite many predictions to the contrary, in the aftermath of the elimination of the mandate penalty, premiums did not soar, the risk pool did not deteriorate, and the death spiral did not materialize. Overall, individual market premiums actually fell a bit in 2019 and 2020. Enrollment dipped in those years, but has recovered to pre-2019 levels. Participating insurers’ average gross margins largely held stable and the number of issuers selling plans through the marketplace has continued to climb.

The individual market continues to stabilize as insurers obtain more data on the beneficiaries they are covering and consumers get more information about coverage. In fact, the ACA had arguably its biggest moment in a decade when the American Rescue Plan substantially increased financial support to purchase health insurance, which is likely to further increase enrollment and improve market stability. Maybe this means carrots (the government-provided financial support to purchase health insurance) really do work better than sticks (the penalty for not purchasing)? 

In the end, the success of the individual health insurance market, even given repeal of the mandate penalty, is the most damning evidence against the plaintiffs’ claims in the case now pending before the Court. The plaintiffs argue that the individual mandate is so essential that the entire ACA cannot function without it. The last three years have shown this simply is not true. 

Health Policy after the American Rescue Plan Act – Is There Anything Left?

With members of Congress back in their home states to extol the virtues (or evils) of the American Rescue Plan Act, Democrats are already moving quickly on the rest of their agenda. 

On Tuesday, President Biden released an outline of his American Jobs Act, likely part one of a two-part infrastructure proposal. So far, it’s pretty thin on health care.

Which begs the question: was the American Rescue Plan Act the end of major health care policymaking before the midterms? After all, the American Rescue Plan Act included big wins for the Biden health policy agenda: a temporary expansion of Affordable Care Act (ACA) premium credits and new federal funding for states that have not expanded Medicaid eligibility. And with only 51 votes, Democrats presumably only have two more chances to move legislation without Republican support: budget reconciliation bills tied to the FY2022 and FY2023 budget resolutions. 

So is health policymaking over until 2023? Our short answer: no. Democrats aren’t done pushing health care. Two items – Medicare prescription drug price negotiation and extending the Rescue Plan’s coverage provisions – appear high on the priority list. Both also, conveniently, meet the Senate’s strict requirements for inclusion in reconciliation. Others – like Medicare expansion and a public option or Medicare buy-in – will probably get some attention but seem less likely to pass. Here’s our political assessment of health care priorities and unlikely options. 

Health care priorities

Medicare prescription drug price negotiation – The second part of Biden’s infrastructure plan is expected to include investments in health care, child care, and education. Democrats are considering paying for some of their spending priorities by allowing Medicare to use its market power to negotiate with prescription drug manufacturers in an effort to reduce drug prices for seniors. A bill passed by the House last year is estimated to save $450 billion, though other versions generate less savings.

Last year’s House bill passed with unanimous Democratic support, and a separate Senate proposal has strong Democratic support. Republicans and the pharmaceutical industry strongly oppose the idea, but consumer frustration with rapidly rising drug costs and the need to pay for other policy priorities may push Democrats to include the provision in reconciliation. 

ACA premium credits – The coverage expansion provisions included in the American Rescue Plan Act are temporary and revert to previous levels in 2023. Because Congress is generally loathe to take something away from constituents, particularly in the run-up to the midterm elections, we expect Democrats to extend these policies. 

Democrats have long sought to make ACA plans more affordable. If there are any objections to the premium credits, they would likely be due to the overall cost, not the idea itself. 

Medicaid funding - The American Rescue Plan Act included a temporary, two-year increase in the federal government’s Medicaid contribution for non-expansion states. In an effort to cover more Americans, Democrats may seek to extend this policy. 

Expansion of Medicaid eligibility in all 50 states was a foundational assumption of the ACA and most Democrats strongly support it. Particularly given the challenging financial situation most states face, it seems reasonable that Congress would extend this policy. However, as we have previously shared, for many deeply red states, no amount of financial incentives will overcome what was always an ideological objection.

Unlikely options

Medicare expansion – While on the campaign trail, President Biden proposed lowering the Medicare eligibility age from 65 to 60. Some Congressional Democrats are pressing for this as well as adding dental, vision, and hearing coverage to Medicare’s benefit package.

While lowering Medicare’s eligibility age has grown more politically palatable, it is still strongly opposed by America’s hospitals, given Medicare’s lower reimbursement rates compared to private payers. It is unlikely that Biden and Democrats want to take on this political fight, particularly before the midterm elections next year. 

Public health insurance option or Medicare buy-in – During his campaign, Biden proposed allowing Americans to buy into a “Medicare-like” plan, hoping to inject more competition into health insurance markets. Both options are unlikely to garner any Republican support and would have to be carefully crafted in order to meet Senate reconciliation rules. 

Despite growing popularity of a public option among the general public, it seems unlikely that Biden will choose to fight this battle, particularly so early in his term. 

The ACA is About to Live Its Best Life. Getting There Will be…Complicated.

Now that President Biden has signed the American Rescue Plan Act into law, the federal government will begin spending nearly $2 trillion to help spur recovery from the dual COVID-19 and economic crises. Tens of billions of dollars will go directly to reducing health insurance premiums for consumers shopping through the Affordable Care Act (ACA) marketplaces. The provision has been on Democrats’ wish list for a decade. Could the ACA could soon be living its best life?

Under the American Rescue Plan, nearly everyone who purchases insurance through the marketplaces will pay less for health insurance, making the plans much more affordable. That’s great news, but it also raises a lot of questions. How much less will consumers pay? And when? Can consumers switch to a different plan?

Federal and state governments are now scrambling to modify back end systems to answer these questions. But calculating the amount of premium assistance (officially called an advance premium tax credit) was complicated to begin with and just got more so. Here’s why:

• Premium assistance amounts are completely individualized. The government doesn’t pay a fixed amount of each enrollee’s premium. Instead, each enrollee pays up to a certain percentage of their estimated income toward the premium and the government covers the rest. The American Rescue Plan reduced the percentage of income enrollees must pay, and re-determining each individual premium tax credit amount will be…complicated.

• New premium assistance amounts are retroactive to January 1. Coverage started January 1 for people who signed up during last fall’s open enrollment, so those enrollees have paid three months of premiums at the previous, higher amounts. Health insurance marketplaces will not only have to recalculate the premiums enrollees pay moving forward, but also reconcile overpayments made during the first three months of the year. It will be…complicated.

• With more generous premium assistance, people may choose a different plan. Once people realize their premiums will be lower, they may opt for a different plan, perhaps one with a lower deductible or cost-sharing to save even more money. The Biden administration has indicated that people may use the current special enrollment period, which runs through May 15, to switch plans, but the mechanics of that will likely be…complicated.

• People who purchased coverage outside of the marketplace may want to move inside. Previously, people earning more than 400% of the federal poverty level (FPL) – about $106,000 for a family of four – were ineligible for premium assistance, which is only available through the marketplaces. Without the premium credit as incentive, many higher-income people purchased insurance outside the marketplace. With the American Rescue Plan, that same family of four would have their premium capped at about $9,000, or $750 per month. This could be a substantial savings for many families, but changing health insurance is…complicated, in part because… 

• Switching plans mid-year resets the deductible. A deductible is the amount of health care an enrollee must pay out of pocket before their health insurance provides coverage. For example, a family may have to pay the first $7,000 in health care expenses before their insurance begins to cover part of each bill. If that family had a lot of health care expenses in the first two months of the year, they will have to determine whether switching plans for a lower premium offsets the additional out-of-pocket spending they will incur with a new deductible to meet, a complicated calculation.   

The good news is that any errors in determining premium assistance amounts will be corrected when people file their 2021 tax returns next April. That’s when the amount of income enrollees estimated to determine their premium assistance amount is compared to what they actually earned during the year. If a taxpayer earned more than estimated, they may owe the federal government money; if they earned less, they may get a larger refund. 

But given the imperative to get more money to consumers by making health insurance more affordable, the incentive to get this right the first time is quite high. The Biden administration has provided some funding to navigators who can help Americans make an informed choice and to marketplaces to help speed the adoption of these changes. But the task of figuring out savings for each enrollee requires a series of complex, back end adjustments to the federal and state marketplaces and the health insurers’ systems that connect with them. Data engineers will need to make these adjustments quickly, and they have little room for error.  

Is Free Cheap Enough?

On Friday, the House passed the American Rescue Plan Act, a $1.9 trillion package to address our nation’s public health and economic crises. A key focus of the legislation is making sure Americans have access to health care during the pandemic, and Democrats are leaning on the Affordable Care Act to fulfill this promise. In fact, in order to give about 4 million Americans access to Medicaid coverage, the bill offers a seriously sweet deal to non-expansion states. But will it work? 

Remember, the federal government already has a standing offer to the 14 states that have refused to expand Medicaid: they will cover 90% of the cost of expansion. Of course, this has always left states with 10% of the bill, and a financial argument for rejecting the federal funds. The American Rescue Plan Act keeps that 90% match and adds another generous provision: a 5 percentage point bump in the federal medical assistance percentage (FMAP) for all populations. That’s right, not just a bump for the expansion population, for everyone in the Medicaid program.  

Let’s put this offer in perspective. The Center on Budget and Policy Priorities calculates that over the two years the bill offers this 5-point bump, the provision would be worth over $3.5 billion to the State of Florida. North Carolina would receive almost $2.5 billion. Georgia would receive almost $1.9 billion. Texas alone would receive nearly $6 billion. These additional funds wouldn’t simply cover the cost of the expansion, they exceed the cost of the expansion group over these two years, leaving states with excess dollars to spend. 

So, will it work? A couple states like North Carolina and Kansas have been on the fence for a while. Governor Roy Cooper of North Carolina has been pushing for expansion since he was elected in 2016, but has not been able to overcome Republican objections. Governor Laura Kelly of Kansas has been on a similar crusade in her state, recently proposing that Kansas pay for Medicaid expansion through revenue from the sale and taxation of medical marijuana. Perhaps this generous deal tips the scales ever so slightly in these states.

 There’s a more interesting dynamic at play in states like South Dakota and Mississippi, where Medicaid expansion is likely to be on the ballot in 2022. Ballot initiatives, of course, have been an enormously successful mechanism for expanding Medicaid over the past four years, far more successful than legislative efforts. So far, ballot measures have succeeded in six states where legislative opposition had completely stalled any chance of expansion: Maine in 2017, Idaho, Nebraska, and Utah in 2018, and Oklahoma and Missouri in 2020. It could be that this generous deal, if well-communicated to voters, could dampen the financial gloom-and-doom arguments of expansion opponents. 

And what about states like Texas, Florida, Alabama, or even South Carolina? Given the amount of money the federal government is offering, arguments about cost should be moot. Expansion on its own generates state savings in the form of lower spending on programs for the uninsured, and in many states, increased revenues from taxes on managed care plans. The new American Rescue Plan Act provision only makes the deal better. 

Even given all that, we still don’t expect these deeply red states to take the federal government up on its new offer. No amount of sweetening the pot financially will overcome what was always, at its core, an ideological objection.  

Georgia (and Budget Reconciliation) On My Mind

By now, you’ve probably heard (a few hundred times) that Democrats picked up two Senate seats in Georgia’s January 5th runoff elections. Raphael Warnock and Jon Ossoff unseated Republican Senators Kelly Loeffler and David Perdue, respectively. When Warnock and Ossoff are sworn in, the Senate will be evenly divided for the first time since 2001. 

So how does a tie give Democrats a win? Under the U.S. Constitution, the Vice President serves as President of the Senate and has the authority to cast tie-breaking votes when necessary. Once she is sworn in, Vice President-elect Kamala Harris will preside over a vote to organize the Senate and elect Senator Chuck Schumer (D-NY) as the Majority Leader.

This is a big deal. In both Chambers of Congress, the majority party controls the agenda. As in the House, the Senate majority party chairs all committees, which means they determine committee agendas, priorities, and actions. In addition, the Majority Leader determines which bills are brought to the floor for consideration by the full Chamber.

However, unlike the House, Senate rules generally require 60 votes to end debate on a bill and move to a vote. Any Senator has the power to filibuster, to just keep talking in order to delay or block legislative action. The only way to end a filibuster is to achieve cloture, which requires 60 votes and ends debate on any matter. 

Democrats don’t have 60 votes, they have 50 votes, plus the vote of Vice President-elect Harris in the event of a tie. So what can Democrats do with such a slim majority? This is where budget reconciliation comes into play. 

Budget reconciliation is an expedited process Congress may use to bring spending, revenue, and debt limits in line with the annual budget resolution. The process begins with the budget resolution, which Congress passes each year to establish its fiscal year budget. This resolution is agreed to by both Chambers of Congress but is not presented to the President and does not become law. In that budget resolution, Congress may include instructions directing specific committees to report reconciliation legislation that achieves a specific budgetary impact. These instructions trigger the reconciliation process.

In the Senate, once the committees approve reconciliation legislation, the rules limit the duration of debate on a reconciliation bill. This eliminates the need for 60 Senators to agree to invoke cloture (or end debate), allowing a reconciliation bill to pass the Senate with just 51 votes. 

At the same time, Senate rules also limit the types of provisions that may be included in the reconciliation bill. The Byrd rule, named for the provision’s chief sponsor, former Senator Robert C. Byrd (D-WV), states that the reconciliation bill and any amendments may not contain matters “extraneous” to the reconciliation instructions included in the budget resolution. The Byrd rule provides six definitions of extraneous matter; a provision meeting any one of these definitions violates the Byrd rule: 

• The provision does not produce a change in government spending or revenue;

• The provision increases spending or reduces revenue when the instructed committee is not in compliance with the reconciliation instructions;

• The provision is outside the jurisdiction of the committee that submitted it;

• The provision makes a change to government spending or revenue that is merely incidental to the non-budgetary components of the provision; 

• The provision would increase the deficit in any fiscal year beyond the “budget window” (currently ten years); or

• The provisions recommends changes to Social Security.

Even with these requirements, budget reconciliation may be used for a broad range of policy changes. For example, the 2017 tax bill was approved through the reconciliation process as were substantial portions of the Affordable Care Act (ACA). 

Democrats may have up to three opportunities to use budget reconciliation before the 2022 mid-term elections. While there is only one budget reconciliation opportunity per budget resolution (and one budget resolution per fiscal year), Congress never adopted a budget resolution for the current fiscal year (2021) and it can still pass one for fiscal years 2022 and 2023.

It is possible the first attempt at budget reconciliation will focus on COVID-19 relief and economic stimulus. President-elect Biden laid out a proposal on January 14, 2021, which he hopes will achieve bipartisan support. Remember, the budget reconciliation process is not necessary if 10 Republicans join Democrats on any bill, but COVID relief talks have been quite polarized over the past nine months. Biden and Congressional Democrats will likely not hesitate to use reconciliation for this purpose if it becomes clear Republicans do not intend to work with them. 

If Congress uses its first reconciliation bill to address COVID-19, it could use a second reconciliation bill to address health care priorities later this year. Biden ran on a health care platform of restoring and enhancing the ACA, and many of his policy proposals meet budget reconciliation requirements. Some of the provisions Democrats may consider advancing through the reconciliation process include:

• Expanding subsidies for Affordable Care Act (ACA) plans to make them more affordable for more people;

• Reinstating a nominal ACA individual mandate tax, which could undercut the legal challenge to the ACA heard by the Supreme Court last fall;  

• Expanding Medicaid eligibility in states that have not yet expanded;

• Lowering the Medicare eligibility age from 65 to 60;

• Creating a public health insurance option; and

• Allowing Medicare to negotiate with prescription drug manufacturers to reduce drug prices for seniors. 

Our next blog will delve into the details of these policy ideas and explore the political likelihood of Democrats including them in their agenda over the next two years.

Together, the election of Joe Biden and two Democratic Senators from Georgia will give Democrats the narrowest of majorities in the Senate. While a one-vote advantage does not mean much under regular Senate rules, it does open the possibility of using budget reconciliation to advance policies with a fiscal impact. However, Democrats cannot afford to lose even one vote, which will be a challenge in a caucus ranging from centrist Democrats like Sen. Joe Manchin (D-WV) to progressives like Sen. Bernie Sanders (I-VT). Keeping all Senate Democrats on the same page will be a challenge in and of itself.  

The ACA at the Supreme Court, Again: 7 Takeaways from Oral Arguments

Yesterday, the Supreme Court, including a newly-sworn in Justice Amy Coney Barrett, heard oral arguments in California v. Texas, the case challenging the constitutionality of the Affordable Care Act (ACA). Unlike in previous challenges to the ACA, the federal government is not defending the law. Instead, a group of Democratic attorneys general and the House of Representatives are defending the law against a challenge from a group of Republican attorneys general (‘the plaintiffs’). The plaintiffs say that because the requirement to purchase health insurance no longer has a financial penalty, it is unconstitutional and the entire ACA must fall.

There are three main questions before the Court:

1.     Do the plaintiffs have standing? That is, have the states suffered an injury?

2.     If the plaintiffs have standing, is the individual mandate to buy health insurance unconstitutional? 

3.     If the mandate is unconstitutional, can it be cut from the law, or is the entire ACA unconstitutional? 

Here are my seven takeaways from the oral arguments. Keep in mind that Justices’ questions and comments during oral argument may not be indicative of how they will rule, and they may engage in deliberate attempts to mislead listeners. But, with that disclaimer in place, let’s examine these three questions.

Do the Republican-led states have grounds to sue? Have they suffered an injury?  These questions are important not only for this case, but also for the effect the Court’s decision in this case may have on precedent and future lawsuits.

·       The Court seemed somewhat eager to avoid directly ruling on the ACA again. Justices focused a good portion of their questions on standing. If the Court rules that the Republican states are not injured by the ACA, it can avoid ruling on the merits of the case. 

·       Several Justices appeared skeptical that the plaintiffs are directly injured by the individual mandate, particularly because it is no longer enforced. For example, Justice Roberts noted that the plaintiffs’ theory “really expands standing dramatically,” because it would allow an individual who is not injured by the provision they seek to challenge to find something in a lengthy law like the ACA that does injure them. Justice Barrett also expressed a bit of skepticism here, questioning whether the parties named in the suit were actually causing the injury, given that the mandate is no longer enforced. 

Is the individual mandate constitutional? The decision regarding the constitutional merits of the individual mandate seems likely to fall along ideological lines.

·       Questions from the Court’s three liberal Justices (Breyer, Kagan, and Sotomayor) suggested they may defend the constitutionality of the mandate.

o   Justice Kagan noted that the Court previously held that the mandate was not an unconstitutional command. After Congress reduced the penalty to zero, “how does it make sense to say that what was not an unconstitutional command before has become an unconstitutional command now, given the far lesser degree of coercive force?”

o   Justice Breyer seemed to suggest that the individual mandate without a penalty was merely “precatory” language, a wish or request. He asked the plaintiffs how they can consider the mandate without a penalty as “something more than a supplication or an entreaty?”

·       Conservative Justices expressed skepticism about the constitutionality of the individual mandate.

o   Justice Gorsuch noted that the Court previously upheld the mandate under Congress’ taxing authority, but the mandate no longer has a tax penalty. This leaves as potential constitutional anchors the Commerce Clause, which was foreclosed as an option in a previous Court ruling, and the Necessary and Proper Clause. Gorsuch appeared unconvinced by the plaintiffs’ argument that the individual mandate could be justified as necessary and proper “because it leaves the framework of the taxing mechanism in place in case Congress wants to do it in the future.”

Can the individual mandate be cut from the ACA or does the whole law fall? Questions during oral arguments suggests there may be at least five Justices who support severing the mandate and allowing the rest of the ACA to stand.

·       Chief Justice Roberts and Justice Kavanaugh appeared to accept the argument that if the individual mandate is unconstitutional, it may be severed from the rest of the law, allowing the ACA to stand. 

o   Chief Justice Roberts stated, “I think it's hard for you to argue that Congress intended the entire Act to fall if the mandate were struck down when the same Congress that lowered the penalty to zero did not even try to repeal the rest of the Act.” He later added, “Congress left the rest of the law intact when it lowered the penalty to zero. That seems to be compelling evidence on the question.”

o   Justice Kavanaugh was even more direct, saying “it's a very straightforward case for severability under our precedents, meaning that we would excise the mandate and leave the rest of the Act in place, reading our severability precedents.” He later said, “it does seem fairly clear that the proper remedy would be to sever the mandate provision and leave the rest of the Act in place.”

·       The Court’s three liberal Justices (Breyer, Kagan, and Sotomayor) have defended the ACA in the past and gave no indication their position had changed.

o   If the case comes down to a ruling on severability, these three Justices, together with Roberts and Kavanaugh, could make up a five-vote majority to severe the mandate and allow the rest of the law to stand. 

·       Justices Thomas, Alito, and Gorsuch appeared to support striking down the entire law. Justice Thomas called the individual mandate the “heart and soul” of the ACA and Justice Alito used many of his questions to come to the plaintiffs’ defense.

A decision is expected by the end of Court’s current term in June 2021. 

Jacqueline Lampert is a Principal with the Rockingstone Group. She was a senior Senate staffer during the writing, negotiation, and passage of the Affordable Care Act.