A New Obamacare Proposal Might Not Be Legal–What about section 1321?

A New Obamacare Proposal Might Not Be Legal–What about section 1321?

part 4 of 4

There is a reason other than economics that the Obama administration may have chosen to ignore the clear restriction of section 1343. It has already been skirting the law in establishing the Risk Adjustment program.  And what’s one more little evasion?

Let’s look at section 1343(a) again. I’ve italicized the key phrase.

Using the criteria and methods developed under subsection (b), each State shall assess a charge on health plans and health insurance issuers (with respect to health insurance coverage) described in subsection (c) if the actuarial risk of the enrollees of such plans or coverage for a year is less than the average actuarial risk of all enrollees in all plans or coverage in such State for such year that are not self-insured group health plans (which are subject to the provisions of the Employee Retirement Income Security Act of 1974.

“Each state.” Those who read the provision above may well have asked: “wait a second, forget about this new reinsurance plan, how does the federal government get the power at all to levy any charges on state insurers under section 1343? The statute says the states have to do it.”  And readers who have taken a constitutional law class may add, “And isn’t it unconstitutional for the federal government to command a state to levy a tax?”  (Yes, New York v. United States, 505 U.S. 144 (1992)).

The answer to this more fundamental legal question appears to be that people are acquiescing to section 1343 as if it does not mean what it actually says. The constitutional issue has been avoided by interpreting it as if it means that the states may create a Risk Adjustment program, though only if the Secretary approves it. If the states don’t create a program or if the Secretary denies approval (as it recently has), the federal government gets to operate it. And where comes the authority of the federal government to tax insurers, particularly in light of the venerable McCarran Ferguson Act in which Congress declares regulation of insurance to be, in the absence of a clear command from Congress, the job of the states?

The view, which at least one insurer (Evergreen Health Cooperative, Inc.) has started to challenge in court, is that the federal government’s authority comes from section 1321 of the ACA (42 U.S.C. § 18041). Reading the provision most favorably to the Secretary, it says in subsection (a) that CMS can issue regulations setting standards for the risk adjustment program that meet the requirements of Title I of the ACA. In subsection (b) it says that each state gets to elect whether to adopt the federal standards. And in subsection (c) it says that if the state does not elect to adopt the federal standards (or have its own program that the Secretary approves) the Secretary of CMS “shall take such actions as are necessary to implement such other requirements.” Believing that “such other requirements” include the risk adjustment program, the Secretary of CMS has been using this interpretation as the basis for running risk adjustment at a federal level for almost all states for the preceding 3 years. Or, at least I guess so, since I don’t see any other legal theory that would support the exactions.

But even if “shall” means “may” in section 1343, and even if section 1321 empowers CMS to operate a risk adjustment plan when a state fails to “elect” to comply with CMS’s restrictions, that does not empower CMS to do whatever it wants. Section 1321 is not a blank check. The regulations CMS uses to run the program must conform to the program. To take an extreme example, CMS could not use whatever authority section 1321 provides with respect to Risk Adjustment to operate a program that assessed insurers based simply on their profitability relative to other insurers within the state.  This is so because the charge would not then be based in any direct way on the actuarial risk of the enrollees within such state. It could not convert Risk Adjustment into a new “Risk Corridors” program. All section 1321 does is let the Secretary do what the states could do if they made a proper election to follow the Secretary’s own requirements. Since the statute requires the state to assess Risk Adjustment and pay out Risk Adjustment based on policies sold within that state, section 1321 gives the Secretary no greater authority.

The Supreme Court decision in King v. Burwell doesn’t change anything about this.  True, the Supreme Court there gave a rather holistic interpretation to language in the ACA that some might have thought was pretty plain on its face.  But it did so significantly because it saw a literal, narrow interpretation as an existential threat to the ACA.  It is going to be really hard for the Executive branch to argue that Obamacare will collapse if it is forced to make a small component of Risk Adjustment payments based on the comparative performance of insurers within the state rather than on national comparisons.

  1. Is a state-based reinsurance cooperative a lawful implementation of Risk Adjustment?

There is also, by the way, some question as to whether the ACA permits the Risk Adjustment program to be used for reinsurance at all, even if the reinsurance is handled on a state by state basis.  On this one, I will confess, I am not entirely sure, but it is worth thinking about. The ACA had a reinsurance program.  It was supposed to last for 3 years.  It would be a little odd if Congress created a whack-a-mole system in which nationalized risk insurance was supposed to disappear after three years but then pop up again under the guise of permanent risk adjustment. But, perhaps this objection can be overcome by contending that the transitional reinsurance was funded with tax money whereas the reinsurance component of permanent risk adjustment will be funded with insurer money and is thus, really, a different thing not slated for disappearance.

source–cms, the aporthecary, seth chandler, forbes, mccarran ferguson act

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