The ACA Battle: Why It’s Just Heating Up

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Wharton’s Mark V. Pauly and Drexel’s Robert Field discuss what’s ahead for the Affordable Care Act.

The Affordable Care Act is once again under threat along with health insurance coverage for at least 20 million Americans as a federal appeals court weighs on its constitutionality. Last December a federal judge in Texas had ruled that the ACA was unconstitutional after Congress removed the individual mandate and zeroed out the penalty in 2017. That was the first major legal challenge to the ACA after the Supreme Court had upheld the mandate in its landmark 2012 ruling that saved the law.

The three-judge panel that heard arguments on the case on Tuesday “sounded likely to uphold a lower-court ruling,” a New York Times report said. The report noted that two of the judges who are Republican appointees “seemed particularly skeptical of the Democratic defendants’ argument that Congress had fully intended to keep the rest of the law when it eliminated the penalty for going without insurance as part of its 2017 tax overhaul.”

Robert Field, professor of law and professor of health management and policy at Drexel University, noted that as the appeals court in New Orleans seemed to support the decision of the lower court in Texas, it opens a whole set of questions: “Will they end the stay and allow the [Texas] decision to go into effect which would implode the Affordable Care Act, and with it much of our health care system?” Field is also a lecturer in Wharton’s health care management department.

“I will be heartsick if it’s declared unconstitutional,” said Mark V. Pauly, Wharton professor of health care management. “My view is that you should be required to have health insurance just like you’re required to wear clothes in cold weather.”

Field and Pauly discussed the ramifications of the challenge to the ACA on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.) Here are key takeaways from their discussion:

Who Gets Hurt if the ACA Is Struck Down?

According to Pauly, the 20 million people who will lose coverage if the ACA is struck down account for 7% of the U.S. population, or a 65% increase in the number of uninsured people in the U.S. Field pointed to other segments that would take hits if the ACA regime ends: People who are taking generic versions of biotechnology drugs, the market for which the ACA enabled; patients within accountable care organizations at hospitals, which the ACA facilitated; medical students dependent on loans; people on Medicare who now don’t have to pay for a coverage gap called “the donut hole” for drug coverage; and quality measures in care for Medicare patients.

A report by the Urban Institute had dire warnings on what would happen if the ACA were to be struck down: Federal spending on health care would fall by $134.7 billion, a decrease of 35%; demand for uncompensated care would increase by $50.2 billion, an increase of 82%; state spending on Medicaid/CHIP would fall by $9.6 billion, a decrease of 6%. The impact in terms of uninsured people would vary widely across states: For example, the number of uninsured in Kentucky would increase by 151% under repeal, compared with only a 12% increase in South Dakota.

“You should be required to have health insurance just like you’re required to wear clothes in cold weather.” –Mark V. Pauly

Further, young adults would no longer get insurance coverage under their parents’ plans up to age 26, and protections would end for people with pre-existing conditions. “Without those protections, insurers could return to denying coverage to such people or to charging them more, a New York Times report warned. “They could also return to charging people more based on their age, gender or profession.”

Twists and Turns

The origin of the current debate can be traced to the Tax Cuts and Jobs Act of 2017, in which the Trump administration effectively eliminated the ACA’s provision of a penalty for individuals who failed to secure their health insurance. That had prompted a group of 20 Republican governors and attorneys-general to challenge the constitutionality of the ACA in February 2019.

In that case, the Federal District Court in Fort Worth, Texas, had ruled that the ACA is unconstitutional, accepting the argument that since the penalty attached to the individual mandate had been removed, the rest of the act does not stand. The federal justice department declined to defend the ACA at the time, but the department of health and human resources had stated that all ACA programs would continue uninterrupted — effectively staying the Texas ruling. The latest case is an appeal against that Texas court ruling by 21 states with Democratic attorneys-general.

Field predicted that it is more likely that the New Orleans court would retain the stay on the ACA and let the case go to the Supreme Court. But a safe passage for the ACA is not assured at the Supreme Court, he noted. “We’re going to have a huge drama once again, where Chief Justice John Roberts is going to be in the hot seat, and we’re going to see whether once again he’s the deciding vote to save the law.”

A Republican appointee, Roberts led the 5-4 majority to save the ACA in 2012, but his arguments in that case are now helping power the latest challenge to the law, as a CNN report noted. Roberts had also changed course many times on the ACA’s validity before deciding to save it, according to another CNN report that tracked the developments leading to it.

In Defense of the Individual Mandate and Penalty

All those who can afford health insurance ought to buy it, or else face a penalty, because others shouldn’t be obligated to step in for them, according to Pauly. “The relatively small fraction of 4% or 5% of the population who somehow just don’t get the idea that they need health insurance when they’re not sick … [impose] a psychological and financial cost on the rest of us” when they do become ill, he said. The penalty should be equivalent to the premium for “the lowest-priced acceptable plan,” he added. The ACA heavily subsidizes people who can’t afford their health insurance, he noted.

Field pointed out that despite the removal of the individual mandate and penalty, “the number of people buying insurance through the exchanges is about the same as when there was a mandate.” For coverage in 2019, about 11.4 million people signed up or were automatically re-enrolled in health insurance exchanges run by the federal and state governments, which was 400,000 fewer enrollees than in 2018, according to government data.

“The number of people buying insurance through the exchanges is about the same as when there was a mandate.” –Robert Field

Pauly clarified that “the great majority of them are heavily subsidized, so for them, the mandate really didn’t matter.” People with low risk profiles “weren’t paying much for their insurance, and they might as well keep it or sign up for it again,” he noted. Therefore, “the stability of the on-exchange market is a little bit misleading.” A third of individuals who buy insurance do so on the “off-exchange market” or outside of the exchanges, and it would be useful to study how stable that market was, he added.

Is Zero Tax Still a Tax?

According to Field, it “defies logic” to argue that the ACA becomes unconstitutional because the penalty was removed. He noted that the penalty “is one provision in a huge statute that is 2,000 pages long.” The questions that emerge in that setting are: “What did Congress want when they got rid of [the penalty]? Did they want the rest of the statute to go away? [To say that] everything has to go … stretches things since Congress voted in mid-2017 not to throw out the rest of the law.”

However, the Republican-appointed judges didn’t seem to think so in the hearing this week. Appellate Judge Jennifer Elrod, a George W. Bush appointee, “posited that lawmakers deliberately eliminated the mandate penalty because they knew the rest of the law would have to fall,” Politico magazine reported. But the attorneys-general for the Democratic-led states that are defending the law, as well as the Democratic-controlled House, “countered that Congress clearly intended for the rest of the law to survive when it eliminated the mandate penalty.”

According to Pauly, a zero tax does not necessarily mean that tax has been eliminated. He recalled that Justice Roberts led the Supreme Court decision in December 2018 that the law was constitutional because the penalty was a tax, and it is constitutional to levy taxes. “Zero is just a number like 3%, so there’s still a tax,” he said.

Field pointed out that there are many cases where taxes are zeroed out for periods of time. “You can have tax abatement where we’re at zero, but it’s still on the books and it can be brought back again.”

The ACA Challenge Could Become an Election Issue

How the ACA case winds its way through the courts would have political ramifications as well.  “One of the big initial questions is the timing” of when it reaches the Supreme Court, said Field. “Will they hear it, and will they decide it before the 2020 election? It could have a huge impact.”

He added: “If people see a threat of losing their insurance beyond those 20 million [who would be rendered uninsured], that could be a great motivator for turnout in the election.” According to Pauly, “a real solution” would be new legislation to replace the ACA, and it would ideally be a bipartisan effort led by a party with a majority in both houses of Congress and the presidency.

“If people see a threat of losing their insurance beyond those 20 million [who would be rendered uninsured], that could be a great motivator for turnout in the election.” –Robert Field

Will States Seize the Agenda?

Field pointed out that some states are setting up their own health insurance marketplaces. At least five states, including New Jersey and Pennsylvania, have taken actions to transition to a state-based marketplace for health insurance, according to a study by The Commonwealth Fund. In June, California passed its annual budget that seeks to restore the individual penalty for failure to buy health insurance.

If the states step in to set up their own exchanges, that could in effect forge bipartisan agreement on health insurance policy because many Republican states also favor that, said Pauly. Massachusetts has had its own health insurance mandate since 2006, and Vermont two months ago introduced a similar mandate that will take effect in 2020, a Politico report noted.

“States should be allowed to do what they want but there should be standards for performance,” said Pauly. Such standards could set caps on the proportion of uninsured people in the state, the types of insurance that could be sold, and whether or not they can be risk-rated, he explained. It would have to include provisions like the risk of losing federal block grants if a state allows the number of uninsured people to rise “too much,” he added.

According to Pauly, the current timing is good to finance those moves because “many states are pretty flush” with tax revenues thanks to “this massive economic expansion that we’re having.” States that are still short of funds could be given federal block grants, an idea that has found some bipartisan support, he added.

Field noted that initially after the ACA was enacted, the majority of states did not set up their own exchanges and relied on the federal government to take care of that. “They are now jumping on the bandwagon creating their own exchanges,” he said, adding that state-based exchanges have “generally performed better” than the federal government’s exchange, Healthcare.gov.

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