The Incidental Economist

The following is a guest post by Nicholas Bagley, University of Michigan Assistant Professor of Law. You can follow him on Twitter at @nicholas_bagley.

In what counts as big news in the world of ACA implementation, the Obama administration announced this evening that it will exempt from the individual mandate anyone whose plans have recently been canceled. Those same people will also be allowed to purchase “catastrophic plans” on the exchanges. Previously reserved for the under-30 set, catastrophic plans are high-deductible health plans that, among other things, don’t have to adhere to the cost-sharing rules that apply to other exchange plans.

Here’s Secretary Sebelius’s explanation for the move, which she included in a response to a letter from Senator Mark Warner:

I very much appreciate your asking for a clarification on whether [the hardship] exemption applies to those with canceled plans who might be having difficulty of paying for an existing bronze, silver, or gold plan. I agree with you that those consumers should qualify for this temporary hardship exemption, and I can assure you that the exemption will be available to them. As a result, in addition to their existing options these individuals will also be able to buy a catastrophic plan to smooth their transition to coverage through the Marketplace.

The Secretary is right that the ACA exempts those who suffer from a hardship from the individual mandate. She’s also right those same people—even if they’re older than 30—are allowed to purchase catastrophic plans.

But is she right that the people whose plans have been canceled are eligible for the hardship exemption? Per the ACA, the exemption covers anyone who “is determined by the Secretary of Health and Human Services under section 1311(d)(4)(H) to have suffered a hardship with respect to the capability to obtain coverage under a qualified health plan.” Section 1311, in turn, is really just a procedural rule. It tells exchanges to issue a certification exempting an individual from the mandate if either “there is no affordable qualified health plan available through the Exchange” or the individual “meets the requirements for any other such exemption.”

Now, with subsidies, exchange plans will be “affordable” for most people whose plans have been canceled, at least as affordability is defined in the ACA. But the hardship exemption is one of those “other such exemption[s]” that section 1311 has in mind. And the language of the hardship exemption is not at all stringent. There just has to be some undefined “hardship” when it comes to the “capability” of getting coverage.

Policy cancelations could plausibly give rise to such a hardship. Given the president’s assurance that the ACA wouldn’t force them to lose coverage, cancelation notices were a rude surprise to many people. Those who structured their affairs in anticipation of retaining their coverage—maybe they stretched their budget to lease a car, for example—unexpectedly found themselves in the unenviable position of having to scrape up extra money to buy an exchange plan. It’s not unreasonable for the Secretary to characterize that as a hardship. Indeed, that characterization jibes with a guidance document issued months ago saying that it would count as a hardship if an individual experienced a “significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage” on an exchange.

Look, I’m sure this latest move will spur comparisons to the delay of the employer mandate and the like it/keep it fix. As a policy matter, maybe the comparison is apt. As a legal matter, it’s not. Where the legality of both of those earlier moves was up for grabs, the legality of this most recent intervention looks considerably more secure.

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