Health
insurance exchange addendum:
Report to the governor
Report to the governor
Remaining issues, unknowns and
considerations regarding the establishment of a state health insurance exchange
Oct. 25, 2012
Executive
summary: The
Patient Protection and Affordable Care Act presents Idaho with the option of
creating a state health insurance “exchange.” We advise the governor that there
are many outstanding issues that your task force could not resolve and remain
outstanding as we submit our findings to you. Our research shows that many
problems exist for any state that develops a state exchange. Moreover, the
creation of a state exchange could cement this cumbersome, expensive and
federally intrusive law in place, fundamentally and permanently altering the
relationship between state and federal government, and between the government
and its citizens. More reasons for concern follow:
1. Creating an exchange may violate
Idaho law. The
Idaho Health Freedom Act (IHFA), Idaho Code §39-9003 (2), provides “that every
person within the state of Idaho is and shall be free to choose or decline to
choose any mode of securing health care services without penalty or threat of
penalty.” One of the required duties of exchange officials would be to establish
eligibility for and to distribute “premium assistance tax credits” and
“cost-sharing subsidies.” Under the PPACA, these entitlements trigger penalties
against both employers (up to $2,000 per employee) and individuals ($2,085 for
a family of four in 2016). State officials who authorize, fund, or administer a
PPACA-compliant exchange would therefore violate the IHFA’s proscription that,
“No public official, employee, or agent of the state of Idaho or any of its
political subdivisions, shall act to…effectuate any penalty in the state of
Idaho that violates the public policy set forth in” the Idaho Health Freedom
Act. Unless the legislature repeals the Idaho Health Freedom Act or the duties
it imposes on the attorney general, the Idaho Health Freedom Act would require
the attorney general to seek an injunction that protects the rights of Idahoans
by blocking state employees and their agents from implementing those tax
credits, subsidies, and any other facet of an exchange that effectuates the
PPACA’s penalties on employers and individuals. Idaho Code §39-9004. While the legislature could amend the IHFA,
an executive order by the Governor authorizing a State Exchange would not by
itself avoid the restrictions contained in Health Freedom Act.
2. A state-created exchange could
destroy jobs because the right to sue is lost under a state exchange. The PPACA authorizes
penalties of up to $2,000 per worker against employers. There is a serious ambiguity in the PPACA on
whether powers and responsibilities given to and benefits flowing through State
Based Exchanges would apply to a Federally operated exchange. The CATO Institute has taken the position
that based upon the literal language of the act such authorities and benefits
vest only in State Based Exchanges.[2] Jack Rovner, an attorney specializing in
health care law, admitted that the language was ambiguous. According to an
analysis from the Cato Institute, the legislature can shield Idaho employers
from those penalties by rejecting the exchange.[3] At the very least, adopting a state exchange
takes away legal recourse from Idaho businesses to challenge the penalty based
upon the legal ambiguity. If Idaho creates an exchange, it stands to lose jobs
to states that do not acquiesce in imposing that tax on hiring by adopting a
state exchange. It is also important to note that the IRS has written
regulations that ignore this legal defect.[4] Adopting a state
based exchange would also remove legal recourse by Idaho businesses to
challenge the authority of the IRS to issue these questionable rules. Perhaps most important is that even if Idaho
businesses themselves did not challenge the tax or the IRS rules, adopting a
state exchange would foreclose Idaho businesses from taking advantage of any
favorable rulings by plaintiff’s in other states challenging the tax and
rulings.
3.
Refusing to create an exchange would exempt 100,000 Idahoans from the
PPACA’s individual mandate. The same ambiguity raises the issue of whether the “premium
assistance tax credit” can flow through a federal exchange. If the PPACA’s “premium assistance tax
credit” does not flow through a federal exchange, then rejection of a state
exchange would result in an additional 107,000 Idahoans qualifying for the
“affordability exemption” from the law’s individual mandate.[5]
4.
The federal government does not have the money to spend on the PPACA’s
subsidies. If
the only way premium tax and subsidy dollars can be distributed is through a
state exchange and not a federal exchange, then refusing to create an exchange
will prevent the creation of a new, costly federal entitlement program.[6] As Idahoans we have to be concerned not only
about the impact of the PPACA in our own state, but also upon the broader issue
of the federal deficit and debt which threatens to take down our entire
economy.
5. Unknowably large future costs. At a meeting in August in
Boise, U.S. Sen. Mike Crapo commented, “I don’t think that anybody can trust
that the federal government will continue to pay 100 percent of the increased
cost [of Obamacare] … States will have to assume that they will begin assuming
increasing portions of that, if not all of it, rather rapidly.” That, Crapo
said, is “legitimate cause to be very concerned” about taking on new program
expenses that threaten to bankrupt states. It is no secret that the federal
government is broke. State agencies that take on the responsibility for the
delivery of a federal tax credit for health insurance premiums should be
prepared to continue that tax credit after the federal government determines it
can no longer afford to offer it. Such
will make the state liable for the administration, distribution and
continuation of the tax credit. The PPACA further requires states to fund the
operating expenses of the exchanges they create—costs that have been estimated
at $10 million to $100 million per year. These costs must be funded through the
exchange which ultimately will come out of the pockets of Idaho consumers and
taxpayers. The Obama administration has
also proposed shifting additional Medicaid costs to the states, above and
beyond the cost of the PPACA’s Medicaid expansion.[7]
6.
Idaho is liable for mistakes in tax credit management. It will be up to Idaho to
administer premium subsidies and advance tax credits available through the
exchange.[8] As part of that
administration, the state will have to comply with the standards for
eligibility determination. If the state fails in its responsibility to properly
determine eligibility, the state could be subject to fines or penalties by the
federal government. As of now, we don’t know what those penalties will be.[9] It will be the state which will carry the
brunt of complaints and problem solving, rather than the federal government
which created the program.
7. There may never be a federal
exchange. It is
doubtful whether the federal government has the capacity to build an
insurance exchange in every state that rejects a state exchange—a problem that
is compounded in the event many states refuse to put together a state exchange.
While Congress provided money for states to build exchanges, it did not do so
for the U.S. Department of Health and Human Services.[10] This means that
HHS will have trouble complying with basic benchmarks to get the job done.[11] This raises the issue of how quickly Idaho
should try to facilitate a law that the large majority of Idahoans reject and
which the federal government is unable to implement without the help of the
states.
8. State resistance may force Congress’
hand. State
resistance makes it increasingly likely Congress will have to revisit the law.[12] Members of
Congress have urged the nation’s governors to reject state insurance exchange
implementation.[13] Rather than preserving local control, adopting a State Based Exchange, Idaho and
other states actually give up leverage to force a change in the law by adopting
a State Based Exchange. It seems evident
that the Federal Government is desperate to have states operate the
exchanges.
9. There is no flexibility for the state
in administration of the exchange. A state exchange will be responsible for
administering and complying with complex regulations that would appear to give
the state very little flexibility in terms of how the program is administered.
The PPACA gives the Secretary of Health and Human Services the authority to
impose on state-created exchanges whatever requirements she considers “appropriate.”
It requires states to obtain HHS approval of their exchanges. And it prohibits
states from enacting any laws that conflict with HHS regulations. HHS’ exchange
rules use the word “shall” 381 times, the word “must” 13 times and the words
“require” or “requirement” 201 times.[14] Several aspects of
exchange administration provide states little flexibility. For example, the HHS
rules strictly outline how an exchange portal is to be set up, the
administration of premium tax and Medicaid eligibility determination and the
processing of exchange application.[15] Any state-sought
change to the operation of the exchange would have to be approved by HHS in
advance, much the way states must seek federal approval for changes in the way
Medicaid is managed.[16] Even if one argues
that the states do have flexibility under the federal rules, it is easy to
point out that rules are fluid and can be changed at any time at the discretion
of federal agencies. The state would then be required to conform to the federal
government’s new requirements, whatever they happen to be. In the event that
the state has already invested considerable resources into the administration
of a state exchange, it is unlikely that the state would withdraw its interest
in the exchange, making it far easier for the federal government to impose its
mandates without state resistance.
10. State exchanges jeopardize the
concept of federalism. A state-administered exchange that relies
on stringent federal requirements provides too little voter accountability.
State residents upset with the operation of a state exchange will complain to
state officials, who will deflect and complain that they’re just following
federal orders. Federal bureaucrats, faced with complaints about the operation
of a state exchange, will deflect and contend that the operation of the
exchange is solely the responsibility of the state government. This blurs the
lines of accountability and is injurious to the notion of federalism. In the
U.S. Supreme Court case, National Federation of Independent Businesses v.
Sebelius, both Chief Justice John Roberts and the joint dissenters express
concern about this method of governance and its impact on government
accountability.[17]
11. Key information is missing in the
development of a state exchange. The state still doesn’t know
key logistics for the operation of the exchange.[18] While some of the
taskforce’s questions have been answered—including the estimate that it would
cost $77 million to develop an exchange—Idaho taxpayers don’t really know what
they’re getting for that $77 million.[19] Additionally,
states are still left with many questions about the operation and funding of
the exchanges, because the federal government has yet to answer those
questions.[20] Finally, we note
that some states are underestimating the long-term costs associated with
insurance exchange operations. For example, Nevada is using a budget model that
assumes virtually no growth in its operational costs after the initial start-up
years.[21] Such estimations
ignore inflationary adjustments, staffing and advertising, as well as the
tendency of government agencies to propose spending increasing in order to
further their objectives.
12. The state will be responsible for
higher insurance costs. A health insurance exchange virtually guarantees increased
insurance premiums for consumers or higher taxes for Idahoans regardless of the
success or failure of the rest of the Affordable Care Act. Under the federal
law, a state health insurance exchange must be self-sufficient by 2015.[22] This would require
state regulators to provide funding through insurance premium taxes, user fees
or general fund support.
13. Consumer information privacy could be
harmed. The
health insurance exchange relies heavily on the willingness of state
governments to share sensitive information about Idahoans with federal
regulators. As such, the state health insurance exchange facilitates and
requires the release of information including taxpayer identification numbers,
modified adjusted gross incomes and participation in other state-administered
programs.[23] The state’s
participation in the health insurance exchange would facilitate the transfer of
private data about Idahoans to untold numbers of federal agencies.
14. Centralization of information is an
end goal behind the insurance exchange. The insurance exchange could help centralize
citizen participation in government. Some supporters of the ACA contend that
the federal health care law, and its component insurance exchanges, could be
used as a one-stop shop to access a host of federal and state government
programs with a single-point digital application process intended to “maximize
enrollment.”[24] Such a concept envisions
that a resident of any state can input his or her data, including “vital
records, employment history, tax records and enrollment in other programs to
determine eligibility and in place of paper documentation. Records can be
checked in real time, while customers are waiting, so many will be able to
receive immediate approval. Applications will be screened simultaneously for
Medicaid, CHIP and tax-based subsidies, regardless of where the customer
initially applies for benefits.”[25] Several states
hope to secure as much government data as possible to make utilization more
seamless.[26] For this reason,
some opponents of health insurance exchanges have described the exchange as a
“dependency portal.”[27]
15. Governor
Otter's exchange questions have been ignored by HHS. The Republican
Governors Association (RGA) on behalf of Governor Otter and 28 additional
governors sent a July 10th letter to the Administration seeking answers to 17
specific questions related to exchange implementation in the states.[28] The RGA followed
up with a July 23rd letter addressing the U.S. Department of Health and Human
Service's response letter that "declin[ed] to directly address" the
questions. The RGA letter on behalf of Governor Otter pointed out ambiguous
language from the Department's reply that claimed, "more guidance will be
issued in the year and half before the...exchanges begin." The letter went
on to say that the Department's response, "was neither substantive nor
serious and appeared to be more of a marketing tool than serious problem
solving." Still not having received adequate answers, the RGA followed up
with a third letter on September 27th. The vast majority—15 of the 17 original
exchange questions—remain unanswered.[29]
16. Idaho
could opt-in to a state exchange later if uncertainties are mitigated.
There is neither the urgency nor necessity for Idaho to establish an exchange
at this point. The explicit language of the March 2012 HHS exchange rule states
that § 155.106, Election to operate an Exchange after 2014, "alleviates
some of the timing pressure" facing states that are unable to have an
exchange up and running by plan year 2014 (i.e., meet the November 16, 2012
deadline).[30] The rule provides
states the opportunity to seek approval to operate an exchange after 2014 by
having an exchange plan conditionally approved under a similar procedure
currently facing the states. Given the findings in this report, there are
serious doubts that a functioning exchange under the PPACA will ever be viable
or preferable. However, if the outstanding questions and concerns are answered
and mitigated, Idaho may opt to establish an exchange after the deadline, and
does not lose the option by declining to meet the current deadline.
[1] Idaho Freedom
Foundation Executive Director Wayne Hoffman, a member of the governor’s working
group examining whether to create a health insurance exchange, recommended that
this information be presented to the governor. However, in a 10-3 vote on Oct. 26,
2012, the panel rejected the report. IFF presented the information to the
governor anyway. Hoffman and Rep. Lynn Luker worked together to draft this
addendum.
[2] Adler, Jonathan H. and Cannon,
Michael F., “Taxation Without Representation: The Illegal IRS Rule to Expand
Tax Credits Under the PPACA” (July 16, 2012). Health Matrix: Journal of
Law-Medicine, Forthcoming; Case Legal Studies Research Paper No. 2012-27.
Available at SSRN: http://ssrn.com/abstract=2106789.
[3] Ibid.
[4] IRS regulations
regarding health insurance premium tax credits, http://tinyurl.com/8gngn8b.
[5] Email
correspondence with Michael F. Cannon, October 9, 2012. Data available on request.
[7] Forbes, Governors'
Worst Nightmare: Obama Proposed Shifting Costs of Obamacare's Medicaid
Expansion to the States, July 19, 2012.
[8] HHS health
insurance exchanges final rule 155.300.
[9] Minutes of the
governor’s health insurance exchange working group, Aug. 2, 2012.
[10] Policy Tip Sheet -
State Health Insurance Exchanges Post SCOTUS, Heartland Institute, July 11,
2012, http://tinyurl.com/9vpt7fl.
[11] “Feds face
challenges in launching health exchange,” National Journal, Dec. 19, 2011, http://tinyurl.com/9n8fve5.
[12] “The federal
government contends it is moving ahead. “In an Aug 6. 2012 Associated Press
article, HHS contends it is “undaunted” about having to run an exchange in more
than half of the states. http://tinyurl.com/d4k7tfp.
[13] Letter from
members of Congress to members of the National Governors Association, June 29,
2012.
[14] Health insurance
exchange final rule.
[15] Ibid.
[16] Ibid.
[17] NFIB v. Sebelius,
567 U.S. ___ (2012)
[18] Minutes of the
governor’s health insurance exchange working group, Aug. 2, 2012.
[19] Governor’s health
insurance exchange working group meeting, Oct. 9, 2012.
[20] Letter from
Virginia Gov. Bob McDonnell, RGA chairman, to President Obama, July 10, 2012.
[21] Meeting of the
Idaho health insurance exchange task force, Sept. 11, 2012.
[22] Sec. 155.160 of
the health insurance exchange regulations say, “A State must ensure that its
Exchange has sufficient funding in order to support
its ongoing operations beginning Jan. 1,
2015.”
[23] Sec. 155.320 of the health insurance exchange
regulations: Verification process related to eligibility for insurance affordability
programs.
[24] “The Health and
Human Services Integration Toolkit: Short list of Opportunities” by the
Coalition for Access and Opportunity.
[25] Ibid.
[26] Strict federal
rules for health exchange data rankle states, Sept. 18, 2012. http://tinyurl.com/9mw9ca7.
[27] Rhode Island
Center for Freedom and Prosperity’s Freedom Blog: “R.I. Creating an Expressway
to Dependency” last accessed Oct. 25, 2012. http://tinyurl.com/bmymgmn.
No comments:
Post a Comment