- Okay Boomer.
In March 2020, the United States Supreme Court agreed to hear a legal challenge to the Patient Protection and Affordable Care Act (PPACA). The case involved is Texas v. Azar, a lawsuit challenging the constitutionality of PPACA after earlier elimination of the law's individual mandate - the portion of the law requiring all Americans to have health insurance or pay a tax penalty for failing to maintain such coverage.
PPACA Litigation
18 states filed Texas v. Azar after the elimination of PPACA's individual mandate. In December 2017, Congress passed the Tax Cuts and Jobs Act, which effectively eliminated the individual mandate penalty, effective January 1, 2019, by making the tax penalty for a violation of that mandate $0.
In December 2019, a federal appeals court ruled in the case that the individual mandate is unconstitutional and directed the lower court to determine whether the rest of PPACA can remain in place. Specifically the federal appeals court held that, "the individual mandate is unconstitutional because it can no longer be read as a tax" since the Tax Cuts and Jobs Act reduced the individual mandate penalty to $0. Once the tax was federally prescribed to be $0, the appeals court held that there is no longer any such "tax." In 2012 PPACA was saved at the Supreme Court when the Obama Administration successfully argued that the individual mandate was valid as a tax and that the mandate was essential to the very essence of the law. All people (healthy or ill) must be compelled to purchase health insurance, the argument went, if the law were to have any hope of remaining under its original $1 trillion price tag.
This latest argument by PPACA's opponents picks up on that thread by pointing out that if the individual mandate was absolutely essential to the law (as held by the Supreme Court in 2012) then the law now must be dead since there is no more individual mandate after congress reduced the individual mandate tax penalty to zero.
The Supreme Court previously denied a request from the U.S. House of Representatives and several Democratic-controlled states to review the case on an expedited basis. The Supreme Court has now agreed to hear the case on its regular schedule, based on the argument that the lower court rulings create uncertainty about PPACA’s future. Oral arguments are scheduled for November 10, 2020 and a decision will be issued in the late spring or early summer of 2021.
This is the third time the Supreme Court has reviewed PPACA’s constitutionality. In addition to the 2012 case, in 2015, the Supreme Court upheld the constitutionality of PPACA’s health insurance Exchange subsidies.
Impact on PPACA
While this legal challenge is pending, all existing PPACA provisions will continue to be applicable and enforced. This challenge does not impact Exchange enrollment, PPACA’s employer shared responsibility (pay or play) penalties and related reporting requirements, or any other applicable PPACA requirement.
The Supreme Court previously denied a request from the U.S. House of Representatives and several Democratic-controlled states to review the case on an expedited basis. The Supreme Court has now agreed to hear the case on its regular schedule, based on the argument that the lower court rulings create uncertainty about PPACA’s future. Oral arguments are scheduled for November 10, 2020 and a decision will be issued in the late spring or early summer of 2021.
This is the third time the Supreme Court has reviewed PPACA’s constitutionality. In addition to the 2012 case, in 2015, the Supreme Court upheld the constitutionality of PPACA’s health insurance Exchange subsidies.
Impact on PPACA
While this legal challenge is pending, all existing PPACA provisions will continue to be applicable and enforced. This challenge does not impact Exchange enrollment, PPACA’s employer shared responsibility (pay or play) penalties and related reporting requirements, or any other applicable PPACA requirement.
Supreme Court Vacancy
On Sept. 18, 2020, U.S. Supreme Court Justice Ruth Bader Ginsburg passed away at the age of 87. Whether the Court vacancy created by Justice Ginsburg’s death should be filled prior to the November election is the media's controversy de jour.
Under federal law, the President is responsible for nominating a new Supreme Court Justice and the nominee must be confirmed by the U.S. Senate.
President Donald Trump indicates that he plans to nominate a woman to fill the vacancy on Saturday September 26th, and the Senate plans to hold a vote on the nomination. However, a number of Democrats in Congress believe that the nomination process should not take place until after the November election.
Long Term Impact in the States
If confirmed before the election, a new Supreme Court Justice could greatly impact the outcome of Texas v. Azar. It is widely expected that President Trump’s nominee will have a more conservative viewpoint and would be more likely to invalidate PPACA. In contrast, a Supreme Court Justice nominated by Joe Biden would be more likely to uphold the law.
Until a nominee is confirmed, the practical impact of this decision remains to be seen. As a result, employers will want to closely monitor developments related to the Supreme Court nomination, keeping in mind that many states have already passed legislation mirroring PPACA.
California, for example, has passed all of the statutes necessary to mandate employer sponsored coverage, individuals maintaining coverage, prohibitions against pre-existing condition limits, and an insurance exchange. Much of the funding for PPACA, however, comes from the federal government. So a repeal of PPACA would create a whole new plethora of nightmares for states that wish to continue insurance exchanges with subsidies. Massachusetts, New Jersey, the District of Columbia and Vermont have all enacted individual mandates at the state level.
Who Wins?
There are compelling arguments on either side. In a purely legal sense, the law's opponents have the better argument. As stated earlier, this argument underscores that PPACA is only alive today because the Obama Administration argued and the Supreme Court agreed in 2012 that the individual mandate was absolutely essential to the law to PPACA's core operation. To wit, without the mandate, only sick folks will buy coverage, premiums will spiral out of control and the insurance systems undergirding PPACA will crumble. Now that the mandate is dead, the argument goes, the law must also die as contemplated by PPACA supporters and the Supreme Court's prior ruling.
PPACA as passed was projected by the CBO to come in at just under $1 trillion. However, immediately after passage, federal administrative agencies began creating exceptions to PPACA's individual mandate. This was done at the behest of PPACA's supporters in congress and the White House because those politicians realized it was going to be unbelievably unpopular to been seen as the party fining people who could not afford health insurance. At peak political cynicism, there were 32 different "exemptions" to the individual mandate meaning that anyone with a reasonable degree of intelligence could exempt themselves from the mandate. In fact, as it turned out, the mandate only ended up applying to two percent of Americans. I've written about this here and here.
The better practical argument lies with PPACA's proponents. And oddly enough it is exactly their political cynicism and America's complete fiscal dysfunction that supports this notion. In the early stages of 2012, many honestly believed that the individual mandate was essential to PPACA's functional existence. The whole concept of insurance is that we all buy it because some of us will really need it. If we only allowed those who truly need it to purchase it and then compel insurers to sell it to them we end up with the disastrous phenomenon of adverse selection, whereby, the persons who insurers most want to sell to are the last ones to show up to purchase and vice versa.
From 2012 to 2015 something else happened. Federal bureaucrats sitting in administrative agencies like HHS, the IRS and CMS crafted these 30+ exemptions to the individual mandate. At peak lunacy, we had exemptions that eliminated your need to buy health insurance if you received a shutoff notice from a utility company in the last six months (not that your power was actually shut off, just that you received a warning). There was also an exemption in the early years that allowed you to opt out of PPACA's mandate if you tried to log into healthcare.gov and the site was not functional. And my favorite exemption of all was that you didn't have to buy insurance if you "felt" that it was too expensive for you and you had better options elsewhere. Ah, the "feelings" exemption - a rigorous legal test if there ever was one.
All throughout this time, there have been reinsurance mechanisms built into PPACA. Without getting too wonky with insurance terminology this basically means that if the risk moving into PPACA's Exchanges ends up being worse than insurers anticipated, the federal government steps in and shares in those losses. A cynic might call these "baked in bailouts." And these very payments have come under scrutiny as well - but we'll save that for another day.
Beyond these reinsurance payments from taxpayers to insurers, insurance companies are also given fairly liberal leeway to set premiums as high as necessary in order to cover future bad risk. And since 80% of PPACA Exchange buyers are making that "purchase" with taxpayer subsidies, the "buyers" don't care all that much about premium anyway.
So, in a practical sense, why do you need a mandate to make this program fiscally feasible if the federal government is ultimately going to make insurers whole and pay any form of required bloated premiums to keep the system afloat? Therefore we now end up with a PPACA whose 10-year price tag looks more like $2 trillion as opposed to its original $1 trillion. Eleven years ago, when PPACA was born, taxpayers and politicians at least pretended to care about a trillion dollar price tag. That was seen as an incomprehensible sum of money. Now, in the midst of a global pandemic and the worst economic depression in 100 years the $2 trillion of healthcare reform looks like a pittance. Today, half of our country argues for Medicare-for-All at a thirty trillion dollar price tag. And our Treasury Department in conjunction with the federal reserve digitally create and spread out $6 to $9 trillion in pandemic bailouts in the blink of an eye with a few strokes on their keyboards.
So when we circle back to these arguments for and against the validity of the law, those arguing that PPACA must fall because without the individual mandate the law could balloon to twice as much as originally contemplated appear antiquated and well outside of the nation's spendthrift zeitgeist. In a practical sense, we never had an individual mandate. It was an IQ test that 98% of Americans passed with flying colors. And while some thought it may have been necessary for PPACA's function in 2012, 2013-2020 have proven that it is clearly not necessary - all we have to do is throw another trillion at the problem. And then maybe another trillion. Chump change in the fiscal imprudence of today's politician.
Perhaps on November 10th when Justice Thomas points out that PPACA will have no chance of sustaining itself at its original projected price tag without an individual mandate, Justice Kagan will, under her breath, utter, "okay boomer."
PPACA as passed was projected by the CBO to come in at just under $1 trillion. However, immediately after passage, federal administrative agencies began creating exceptions to PPACA's individual mandate. This was done at the behest of PPACA's supporters in congress and the White House because those politicians realized it was going to be unbelievably unpopular to been seen as the party fining people who could not afford health insurance. At peak political cynicism, there were 32 different "exemptions" to the individual mandate meaning that anyone with a reasonable degree of intelligence could exempt themselves from the mandate. In fact, as it turned out, the mandate only ended up applying to two percent of Americans. I've written about this here and here.
The better practical argument lies with PPACA's proponents. And oddly enough it is exactly their political cynicism and America's complete fiscal dysfunction that supports this notion. In the early stages of 2012, many honestly believed that the individual mandate was essential to PPACA's functional existence. The whole concept of insurance is that we all buy it because some of us will really need it. If we only allowed those who truly need it to purchase it and then compel insurers to sell it to them we end up with the disastrous phenomenon of adverse selection, whereby, the persons who insurers most want to sell to are the last ones to show up to purchase and vice versa.
From 2012 to 2015 something else happened. Federal bureaucrats sitting in administrative agencies like HHS, the IRS and CMS crafted these 30+ exemptions to the individual mandate. At peak lunacy, we had exemptions that eliminated your need to buy health insurance if you received a shutoff notice from a utility company in the last six months (not that your power was actually shut off, just that you received a warning). There was also an exemption in the early years that allowed you to opt out of PPACA's mandate if you tried to log into healthcare.gov and the site was not functional. And my favorite exemption of all was that you didn't have to buy insurance if you "felt" that it was too expensive for you and you had better options elsewhere. Ah, the "feelings" exemption - a rigorous legal test if there ever was one.
All throughout this time, there have been reinsurance mechanisms built into PPACA. Without getting too wonky with insurance terminology this basically means that if the risk moving into PPACA's Exchanges ends up being worse than insurers anticipated, the federal government steps in and shares in those losses. A cynic might call these "baked in bailouts." And these very payments have come under scrutiny as well - but we'll save that for another day.
Beyond these reinsurance payments from taxpayers to insurers, insurance companies are also given fairly liberal leeway to set premiums as high as necessary in order to cover future bad risk. And since 80% of PPACA Exchange buyers are making that "purchase" with taxpayer subsidies, the "buyers" don't care all that much about premium anyway.
So, in a practical sense, why do you need a mandate to make this program fiscally feasible if the federal government is ultimately going to make insurers whole and pay any form of required bloated premiums to keep the system afloat? Therefore we now end up with a PPACA whose 10-year price tag looks more like $2 trillion as opposed to its original $1 trillion. Eleven years ago, when PPACA was born, taxpayers and politicians at least pretended to care about a trillion dollar price tag. That was seen as an incomprehensible sum of money. Now, in the midst of a global pandemic and the worst economic depression in 100 years the $2 trillion of healthcare reform looks like a pittance. Today, half of our country argues for Medicare-for-All at a thirty trillion dollar price tag. And our Treasury Department in conjunction with the federal reserve digitally create and spread out $6 to $9 trillion in pandemic bailouts in the blink of an eye with a few strokes on their keyboards.
So when we circle back to these arguments for and against the validity of the law, those arguing that PPACA must fall because without the individual mandate the law could balloon to twice as much as originally contemplated appear antiquated and well outside of the nation's spendthrift zeitgeist. In a practical sense, we never had an individual mandate. It was an IQ test that 98% of Americans passed with flying colors. And while some thought it may have been necessary for PPACA's function in 2012, 2013-2020 have proven that it is clearly not necessary - all we have to do is throw another trillion at the problem. And then maybe another trillion. Chump change in the fiscal imprudence of today's politician.
Perhaps on November 10th when Justice Thomas points out that PPACA will have no chance of sustaining itself at its original projected price tag without an individual mandate, Justice Kagan will, under her breath, utter, "okay boomer."
