DC Federal District Court: Obamacare’s Unappropriated Subsidies Illegal
The Affordable Care Act (ACA) requires all U.S. residents to enroll in health coverage. Americans with incomes too low to afford coverage qualify for premium subsidies to help them with the cost. The ACA also has provisions where Americans earning near the poverty level also receive cost sharing reductions to assist with out-of-pocket costs below their deductibles. That may be about to change; DC Federal District Court ruled the cost sharing reductions are unconstitutional.
Costly regulations make Obamacare coverage so expensive that the Obama Administration has to basically give it away to make the program appear like a success. Only 17 percent of Obamacare’s 12 million enrollees are paying their own premiums. About 83 percent of enrollees qualify for premium subsidies, while around 56 percent receive both premium subsidies and cost-sharing reductions (roughly 5 million people). The problem is that cost-sharing subsidies are being paid despite the funds having never been appropriated by Congress. Illegally looting the treasury to make Obamacare appear like a success is both bad for taxpayers and an abuse of presidential power. The amounts are far from trivial; taxpayers’ costs will total $7 billion in 2016 — more than doubling to $16 billion in another 10 years.
How did this happen? When Obamacare was rammed through Congress in December 2010, it was an unfinished work-in-progress. The Congressional staffers writing the bill had neglected to include specific provisions for the appropriations to fund the cost sharing reductions. Ordinarily, drafting mistakes are fixed later on or possibly caught and remedied during the conference committee between House and Senate versions of the bill. But the untimely death of Massachusetts Senator Edward Kennedy became more complicated when a Republican won his senate seat. At that point Democrats in Congress no longer had sufficient votes to pass a reconciled bill in the Senate. The Democrat-controlled U.S. House took the nearly unprecedented step of passing the incomplete Senate version of the bill rather than compromise with Republicans and work to pass a reconciled bill both parties would accept.
What difference does it make? Potentially a lot! The loss of cost sharing reductions will likely sink Obamacare if the ruling is upheld. Granted, the Obamacare ship was already taking on water. The standard plan for the purposes of calculating subsidies is the second lowest Silver plan. By law, it is designed to cover approximately 70 percent of its aggregate members’ medical costs after factoring in their deductibles. Cost sharing reductions raise this level to 73 percent for those at 250 percent of poverty and 87 percent for those earning twice the poverty level. It’s 94 percent for those earning just above poverty.
Let me put this into perspective. The average deductible for the standard silver plan is just over $3,000, but would drop to around $2,500 for someone earning 250 percent of poverty. For someone earning 150 percent of poverty, the cost sharing reductions would lower his or her deductible to about $700; and just over $200 for someone at the poverty level. It’s safe to argue that someone earning between 100 percent and 250 percent of poverty ($11,880 to $29,700) would have a hard time paying $3,000 in cost-sharing before their deductible is met. Suffice it to say, a $3,000 deductible for someone at that income level makes coverage basically worthless to all but the sickest patients.
The Republican-controlled House voted to sue the Executive Branch for its abuse of Presidential power. On May 12, Judge Collyer of the federal district court for the District of Columbia ruled in favor of the House of Representatives. However, Judge Collyer stayed her order until the Obama Administration has the opportunity to appeal.
The way in which the Affordable Care Act was passed was rather underhanded. The irony is that the case will now go to the U.S. Court of Appeals, District of Columbia Circuit. Supreme Court nominee, Merrick Garland, is one the judges in the D.C. Circuit Court of Appeals. His appointment is being stonewalled by Republicans in the Senate, who are dragging their feet. Who knows; Judge Garland may have an opportunity uphold the federal district court decision and show Congressional Republicans he plans to uphold the Constitution, including its separation of powers. Or he may decide to uphold the Obamacare cost-sharing subsidies that Congress has never appropriated — illustrating a good reason to oppose his appointment.
“It’s safe to argue that someone earning between 100 percent and 250 percent of poverty ($11,880 to $29,700) would have a hard time paying $3,000 in cost-sharing before their deductible is met. Suffice it to say, a $3,000 deductible for someone at that income level makes coverage basically worthless to all but the sickest patients.”
As an American, I am proud that we may be getting rid of the federal subsidies toward cost sharing for these low-income people. It will make America strong.
I agree with you this time, Uwe. I am pleased that you are not one of those that think we should take money from people at gunpoint to pass it on to a bloated health care administrative system.
Now, if we can find enough health care providers that take cash, then good people like you and me can help these people through true charity.
When enough people, including health care providers, think like we do we can get rid of this ridiculous system foisted on us by the insurance companies and state and federal law. Then the patients can once again be customers instead of pawns, even if they must rely on charity.
Again, I am pleased with your apparent change of heart. You really are a good man after all.
Charity, That’s funny. Do the poor people have to kiss your ring to get your cash?
I would rather be taxed and give the unfortunate a little dignity.
I’d prefer a system where moderate-income families receive a tax credit they can use for cost-sharing, and towards premiums for health benefits that are more flexible. IN that I would include the right to have a limited benefit plan. The current regulations are why the average deductible for a standard Silver Plan is $3,000. Obamacare forces everyone to have insurance that costs so much that we all are paying for our day-to-day medical needs out of pocket. For most families, that’s not a problem. But it’s rather disconcerting when a health plan for my wife (who’s super health conscious) costs $6,000 and requires her to spend $6,750 out-of-pocket before anything is coverage. She’s about to the point of concluding the $6,000 spent on premiums would be better spent on actual medical care and forgo the coverage.
Uwe asked for it; Uwe got it.
Devon, I assume from past comments that you are over age 50.
If your wife is the same, then she is paying a high premium because the other 50+ year olds in the individual market are filing a hell of a lot of claims. (Some of these persons were denied private health insurance before the ACA.)
You should call a spade a spade (as you have, in other writings. Obamacare forces your wife (and mine, incidentally, who is equally health-conscious) to share in a risk pool with people who are desperately sick.
Eseentially our wives are being taxed, so that everyone else over 50 can have guaranteed issue. The interesting question, it seems to me, is whether these extra premiums are a greater tax than if we just established about $75 billion/yr of high risk pools and just raised the income tax.
(I rather like raising income taxes, because then the head of the IRS and Elizabeth Warren pay more, as do our wives)
Bob, it’s a tough issue to fix. My wife has been an athlete all her life. She makes weekly treks to the gym and does yoga. She is extremely selective about what she eats. Now her penalty under Obamacare is that she gets to spend $6,000 a year on coverage that provides no tangible benefits in order to subsidize people who probably don’t do any of that.
I’m in favor of rewarding good behavior, since that is the best way to encourage it. The problem with our current system is it relies on healthy folks to offset costs for higher cost individuals. That’s why I like the system in Singapore, where everyone is required to save for future medical needs. That way, they can spend down their Medi-Save account if they’ve lead an unhealthy life rather than asking my wife to deplete her income so someone else doesn’t have to. My idea involves pooling your own health risk over your working life rather than across other people.
Devon, if your wife is very healthy and wellness conscious, perhaps you should email me privately. I can get her tremendous coverage for $250/mth with a $500 deductible and none of the skinny network limitations of Obamacare. This provides exemption from Obamacare penalties, and is available nationwide, but the key is “Must be Healthy”…You read that right, individual Under 65 coverage that is strictly underwritten, yet exempt from the Obamacare mandate penalties.
I want to make two other comments about this excellent post.
1. This is not the first time that a political party passed a flawed piece of legislation just to get it on the books.
The Social Security Act of 1936 excluded farm workers and domestic servants, many of whom were black, because Roosevelt would not confront the vicious Jim Crow Democrats of his time. (As one southern Senator remarked, “These shirts do not fold themselves.”) By 1950 this was mostly corrected.
So maybe it was better to pass a flawed bill.
2. As Professor Reinhardt notes ironically, would it really kill the Republicans to agree to some form of cost sharing reduction? According to many pundits these days, Republicans now want the votes of the working class, and people who face high deductibles with no savings are about as working class as you can get.
I grant you that the whole issue of cost sharing reductions requires some mental gymnastics, which I have trouble with myself. What I mean is:
a. Many workers get no insurance at work, so we pass elaborate federal subsidies to help them buy the product;
b. But even with subsidies, the product they can afford does not give them good protection in case of serious ilness;
c. So we sneakily pass a second set of subsidies to help people actually use their insurance.
I can understand why some Republicans would say “screw this,” but we should to think this througy.
Bob, Apparently Rich Osness missed the heavy radioactive sarcasm dripping from Uwe Reinhardt’s reply.
You say “so maybe it was better to pass a flawed bill”. Did you ever stop to think that maybe it was better to actually work on a good bill rather than on this monstrosity that was slapped together by an aging army of legislators (one, Kennedy practically on his deathbed), and pushed through by an ignorant , incompetent president who was told by the old timers this would make him the new FDR.
Three huge problems affecting the healthcare system in the U.S are 1- Uncontrolled costs driven by an uninformed public, and a very non-transparent pricing system. 2- The practice of defensive medicine created by an uncontrolled tort system, and legions of sleazy lawyers. 2a- Not as huge, but an offshoot of item 2. The excessive self-referring to ancillary providers controlled by families and LLC’s set up by the referring providers.(as long as you have to order excess testing to CYA, might as well profit from that as well.) 3- The politically correct , but culturally corrosive practice of excusing horrible lifestyle choices eg; Alcoholism, Drug Abuse, Obesity. Marking these people as “sick” relieves them of their responsibility in making crappy decisions, and passes the incredibly high bills for their misbehavior to society at large. None of these three huge issues were even considered by Obamacare, and the results are already apparent.
It may have been a better idea to at least consider some of these issues before a “flawed bill” was unleashed on the American taxpaye,r to benefit the American (and other) non-taxpayers.
Sorry. I thought it was obvious that my comment was facetious (Sarcasm sounds so harsh).
Gitmoray, I DO like your later comment on excuses for obesity.
My whole point was that our current methods of paying for health care is the reason we spend so much on health care. We could be healthier and have better health care for much less than half of what we now spend, if the patients were actually customers instead of pawns. That is not charity. It is cruelty.
I don’t blame the recipients of government welfare. I blame those of us who think it is moral/ethical/Christian to use deadly force to make others pay to give “help” to others that they are unwilling to freely give.
I do not expect to convince most of the central planners that regularly comment on this site, but perhaps a few will think about the ethics of our current health care finance system. The solution is not a different central plan or regulation.
Hey Rich, was not sure if you were aware of Mr Reinhardt’s proclivity for the Socialist BS. Uwe is a very smart guy, but so many truly smart people just don’t seem to grasp that Socialism and Communism do not work not because they are flawed ideas. They do not work because they are beautiful ideas that must be applied to these very flawed imperfect entities called human beings, that are full of toxic emotions such as greed, envy , gluttony etc.. We ignore this basic fact of life at our own or at society’s peril.
I was born in Cuba and lived there until 13 years of age (three of them under Castro’s communist heaven). That turned out great as everyone knows! I also lived in Venezuela for 6 years, and experienced a very rich country with incredible natural resources (including hydroelectric capacity) . Now the current regime has turned it into a third world hellhole where electricity is available 4 hours/day,the infant mortality rate has skyrocketed, and you can’t get even toilet paper. Another masterpiece produced by the Communist/Socialists maestros.
And in our crazy country, many continue to insist in propping up Obamacare, and rave about an old Socialist lunatic that wants to give us Free healthcare and free College for all .. OMG
Bob, Apparently Rich Osness missed the heavy radioactive sarcasm dripping from Uwe Reinhardt’s reply.
You say “so maybe it was better to pass a flawed bill”. Did you ever stop to think that maybe it was better to actually work on a good bill rather than on this monstrosity that was slapped together by an aging army of legislators (one, Kennedy practically on his deathbed), and pushed through by an ignorant , incompetent president who was told by the old timers this would make him the new FDR.
Three huge problems affecting the healthcare system in the U.S are 1- Uncontrolled costs driven by an uninformed public, and a very non-transparent pricing system. 2- The practice of defensive medicine created by an uncontrolled tort system, and legions of sleazy lawyers. 2a- Not as huge, but an offshoot of item 2. The excessive self-referring to ancillary providers controlled by families and LLC’s set up by the referring providers.(as long as you have to order excess testing to CYA, might as well profit from that as well.) 3- The politically correct , but culturally corrosive practice of excusing horrible lifestyle choices eg; Alcoholism, Drug Abuse, Obesity. Marking these people as “sick” relieves them of their responsibility in making crappy decisions, and passes the incredibly high bills for their misbehavior to society at large. None of these three huge issues were even considered by Obamacare, and the results are already apparent.
It may have been a better idea to at least consider some of these issues before a “flawed bill” was unleashed on the American taxpayer’s to benefit the American (and other) non-taxpayers.
It’s not true that everyone who is unhealthy or already sick got to that state because they failed to follow a healthy lifestyle. The fact is that plenty of people drew a bad genetic hand. I’m one of them. I maintained a normal weight, didn’t smoke, didn’t drink, and still needed quintuple heart bypass surgery at age 53. Heart disease runs in my family. Many people who are overweight have a slow metabolism. They could consume the same number of calories as I do and go to the gym regularly and still gain weight. Babies born prematurely with serious complications could easily rack up a seven figure medical bill while still in the hospital and then need lots of expensive care for the rest of their lives. Whose fault is that?
If the insurance market were underwritten, I don’t think a Singapore style forced savings account would be sufficient to come close to paying the health insurance premium for sick people assuming the insurer would sell those applicants a policy at all. Maybe the healthy folks would rather have high risk pools and be able to buy cheap underwritten health insurance at least as long as they remain healthy. Those pools would be pretty darn expensive though. I wouldn’t be surprised if they would cost $100 billion per year or more as insurers, knowing such pools are there, redouble their efforts to weed out as many bad and sub-par risks as possible and let the high risk pools insure them.
Income taxes would have to be raised to pay for high risk pools assuming we don’t just opt to borrow more money from the Chinese and the tax increase would be concentrated within the top 5% or 10% of the income distribution. There’s no free lunch here. You can pay now or pay later but just telling the unhealthy and already sick, tough luck, go pound sand isn’t an acceptable solution in my opinion.
Barry, You make some good points. There is no free lunch. But I believe we can do better than Obamacare. A Singapore style system may not be sufficient to insure very high risk individuals. But it would get us closer to self-funding than a Ponzy scheme that continually relies on healthy young people to offset the cost of unhealthy old people. As a society we should expect for each generation to be self-funding.
We are spending $9,000 per capita on health care. That’s real money. That means each individual must lower their standard of living by $9,000 to pay for national health expenditures. Most babies and school children cannot be counted on to pay their share. Seniors pay a lot but more than half of their care is subsidized. That leaves the rest of us folks to pay for those too young, too old or too poor to pay their own costs. And, since most people fall into the category of too young, too poor or too old, that leaves a huge sum for those of us who are not young, old or too poor. I believe it’s self-evident that it is unsustainable.
On average, per capita health spending will exceed $1 million for every person who lives and dies (depending on when they were born). Are most Americans really willing to reduce their lifetime earnings by $1 million to pay for Obamacare? Is $1 million in health spending per capita even a good value? For instance, does it extend life by, say, 1 year or 10?
In our health care system there is a lot of waste, fraud, abuse, price-gouging, etc. I believe if we had more consumer engagement, prices would not be as high. Maybe a Singapore type system would encourage that engagement. We can safely say the current system is not working. At least, it cannot carry on as it is indefinitely. Furthermore, cross-subsidies encourage rising prices and waste.
Devon – Since I started commenting on healthcare policy blogs in 2006, I’ve been interested in how healthcare costs could be reduced or how we could at least slow the growth rate without sacrificing quality or resorting to rationing. Three particular areas of concern were the lack of price transparency, the medical tort system and associated defensive medicine, and our approach to end of life care. We have a long way to go in all three of those areas.
With respect to price transparency, we have it in dental care and a large percentage of the population doesn’t have dental insurance. Most of those who do have it are subject to balance billing. On the other hand, it’s virtually impossible to rack up costs that rise to the catastrophic level. Serious dental work rarely costs more than $5,000 while six or seven figure bills are unheard of as far as I know. We also have price transparency in areas like physical therapy, home health care and skilled nursing care yet all three of those areas are prone to fraud which we probably have more of in the U.S. than other countries do.
As for working with President Obama on a bipartisan bill, I just don’t think the republicans were interested especially since Senator McConnell told everyone early on that his top priority was to make Obama a one term president. Even the AMA told Rahm Emanuel who was Obama’s Chief of Staff at the time that it was more interested in an SGR fix than medical tort reform as an SGR fix was its top legislative priority which it got passed a number of years later after the estimated ten year cost as scored by the CBO fell to a level that was more palatable for legislators.
Similar to Romneycare which passed the Massachusetts legislature in 2006, the idea behind the ACA was to increase the percentage of the population that was covered by health insurance first and attack healthcare costs later. The good news is that medical cost growth has, in fact, slowed considerably since 2009. Whether or not the ACA had anything to do with that is beside the point. It’s good news that made the cost of the ACA to taxpayers more tolerable than it would have been if healthcare cost growth hadn’t slowed.
With the uninsured population now down to 9.1% of the total population from 16% in 2010, we’ve made a lot of progress on the coverage front. There are plenty of opportunities to improve the ACA but a bipartisan effort would be needed to accomplish that. If Republicans want to repeal and replace it, I think they will need to come up with something that doesn’t materially increase the uninsured population again. The ideas they’ve put forward so far don’t meet that test.
I’m not convinced boosting health insurance coverage makes much of a difference when insurance deductibles are $3,000 to $6,000. Most people under those conditions are paying out-of-pocket for nearly all their care. I would rather give them (everyone actually) a tax credit they could either use to pay for out-of-pocket medical care or apply towards insurance. Poorly-designed insurance is the route cause of the health care cost problem.
That’s why lower income people also get help with cost sharing. I don’t think a tax credit would work unless its value significantly exceeds the tax preference value of the employer provided health insurance benefit.
The after tax equivalent value of the insurance is just part of employee compensation. So, a single coverage plan worth $5K might consist of $2K in tax preference, including exemption from payroll taxes, and $3K in compensation.
A tax preference of $2K wouldn’t go very far especially under guaranteed issue with age rating.
“Many people who are overweight have a slow metabolism. ”
Barry, I have heard these stories for years, and from my personal experience, these mythical “slow metabolism ” creatures are as rare as the Yeti, or more updated, the Chupacabra.
Most of the “slow metabolism” types I have met in over 20 years in Health Insurance, seem to compensate by having a fast hand in shoveling in the triple bacon cheeseburgers and the cheesecake. That being said, there are many sites on the Internet dedicated to Bigfoot hunters so something must be there…who knows?
Check out the link below regarding keeping weight off once it’s been lost. The article highlights the experience of contestants on Season 8 of the show, Biggest Loser.
http://www.nytimes.com/2016/05/02/health/biggest-loser-weight-loss.html?_r=0
Barry, that’s an interesting article. I wonder, then, why obesity is something of a recent phenomenon. And why it’s a bigger problem in the U.S. than Europe. And why the Biggest Losers have regained all their weight continue to burn fewer calories than before the show. Something about them has changed. There are theories that gut biology can make a difference. There have been studies of skinny and fat mice. Exchanging their gut microbes resulted in either gaining or losing weight.
Devon – As recently as 1980, the U.S. obesity rate was only about 15% which is comparable to what it is in much of Western Europe today (higher in the UK). The U.S. obesity rate today is about 34%, I think. I have several theories about what drove the increase.
First, according to a chart I saw a couple of years ago at Jefferson Medical Center in Philadelphia, typical portion sizes for a wide variety of foods increased significantly between 1980 and now. While I don’t know, one possible reason for that is that it was a response by restaurants to sustain the perception of value for money as labor costs and menu prices rose over time. Since the actual food is only about one-third of costs for the typical restaurant, it’s not hard to increase the portion size to offset some or all of the cost pressure from rising wage costs. People are more willing to accept higher menu prices if they think they’re getting a good amount of food for the money.
Second, the number of fast food restaurants proliferated dramatically over the last 30-40 years. When I was in high school, they were virtually unknown and McDonalds wasn’t even founded until 1955. Now they’re everywhere including in supermarkets and even hospitals.
Third, I’ve read that on a per calorie basis, healthy food is 12 times more expensive than junk food. This is a big deal especially to low income people. Even if low income people wanted to buy healthy food, they often can’t find it in their community except perhaps at overpriced bodegas and convenience stores. Supermarkets are few and far between in the inner cities.
Finally, the sharp decline since 1979 in the number of people working in the manufacturing sector means many fewer people are doing physically demanding jobs and millions more are sitting at desks doing office jobs in the expanding service sector. To free up time, lots of us have also outsourced tasks like mowing the lawn and a lot of that work is now done by young people working for landscaping companies.
On the positive side, there does seem to be a secular trend that’s developed over the last few years of declining consumption per capita of soda in favor of bottled water. Food labeling and restaurants posting the calorie count of each of their offerings should at least allow people to make better informed choices. It’s discouraging, however, when you find out how long you have to spend at the gym or on a bike or walking, etc. to offset the 300 calories in the donut you consumed in less than a minute. Weight control is an uphill battle to put it mildly for millions of people.
Come on people! I’m surprised at your naïveté for people who are obviously well educated and experienced in the healthcare arena. The general population will NOT take it upon themselves to eat healthy and exercise to reduce obesity. The personal responsibility ship has set sail in this once great nation. Today it is: “ask what your country can do for you, ask not what you can do for your country.”
Healthcare cost, not coverage, is the real problem that mere expansion of insured population does nothing to control. Tort reform, price transparency and end of life care as Barry smartly mentioned above are 3 quick, easy and realistic ways to reduce costs.
Changing obesity tendencies in the population cannot be improved especially as a higher percentage of the population are no longer in the workplace. For the first time ever, 93 million adult able bodied Workers are not in the US workforce. Only 62% of potential workers have a job. A Gallup Healthways study found that unemployed people are more likely to gain weight and be obese the longer they are unemployed. With more workers being replaced by automation/robots and unemployment becoming too attractive to get a low paying job, our country is doomed to obesity. It’s a structural foregone conclusion. As they say, idle hands are the actuary’s workshop.