The following is a guest post by Nicholas Bagley, University of Michigan Assistant Professor of Law.
According to [an] administration source, the White House is “looking at an administrative fix for the population of people in the individual market who may have an increase in premiums, but don’t get subsidies.”
Such a fix would address the issue of “sticker shock” that has been popping up across the country, as individuals are losing their coverage and finding only higher-cost alternatives. Under the ACA, there are tax subsidies to help individuals and families with income between 133 percent and 400 percent above the poverty level purchase insurance. Those with incomes higher than 400 percent above poverty get no such assistance. The proposed administrative fix would address this group.
If this is right, it’s big news. If you make more than four times the poverty level and don’t have insurance through your employer, you may be getting an unexpected holiday gift from the president.
But what exactly does the administration have in mind? Even after kicking that question around with Austin and Adrianna, I’m completely stumped. The Obama administration can’t just issue tax credits because it feels bad for misleading some people. Under the ACA, only “applicable taxpayers” can get tax credits. And an “applicable taxpayer” is defined as a taxpayer with household income between 100 and 400 percent of poverty.
Nor can the administration delay the new coverage rules that have led insurers to cancel plans. Starting on January 1, 2014, all plans, whether on the exchanges or off, have to cover the “essential health benefits package.” That package includes cost-sharing requirements, a particular sticking point for most of these canceled plans. As far as I can make out, the ACA doesn’t give the administration the discretion to delay those requirements.
Maybe the administration plans on tweaking the ACA’s grandfather clause, as Jonathan Cohn has suggested. Under that clause, most (but not all) of the ACA’s new rules are waived for a plan that an individual has had continuously since March 2010. Because the ACA is silent about the sorts of changes that make a plan new enough that it loses its grandfathered status, HHS has issued a regulation to fill in that statutory gap. HHS could intend to revisit and relax that regulation so that more plans qualify as grandfathered.
Although this approach sounds promising, I don’t think it would work. Plans on the individual market change so much from year to year that, under HHS’s existing rule, very few people still have grandfathered plans. To help out the people the administration wants to help out, plans that have lost their grandfathered status would have to see that status restored retroactively. The Supreme Court, however, has held that retroactive rulemaking is a no-no. I don’t see how HHS gets around that precedent.
Jon also floated the possibility of tinkering with the reinsurance provisions of the ACA. The idea would probably run like this: from 2014 through 2016, insurers must contribute to a reinsurance entity that protects them against unanticipated losses. From the insurer’s perspective, the reinsurance contribution looks a lot like a tax. Since HHS has a lot of discretion when it comes to setting up the reinsurance program, maybe it’ll use that discretion to relieve some individual plans of that tax-like obligation. In turn, that could reduce the price of new, ACA-conforming plans.
But which plans should get a reinsurance break? Any given insurance plan on an exchange will be sold to some people who make more than 400 percent of the poverty line and some people who make less. I don’t see any way to tailor the reinsurance break so that it benefits only the over-400-percenters. For a reinsurance break to be at all helpful, HHS would probably have to exempt all individual insurance plans from the reinsurance contribution. That would be a pretty extraordinary (and maybe unlawful) move—one that would shift all the costs of reinsurance to employer-sponsored plans, which aren’t even eligible for ACA-sponsored reinsurance benefits.
In short, I’m flummoxed. Maybe the administration has something creative up its sleeve, and it’s certainly prudent to reserve any kind of final judgment until we learn more. For now, though, color me skeptical.