What Can Trump Do to Obamacare on Day 1?
The Affordable Care Act is not dead yet. Even if Republicans have a reconciliation bill repealing portions of the ACA ready for President Trump to sign on January 20, it seems likely that they will delay the effective date of the legislation for several months or perhaps several years so as to leave themselves time to produce a replacement. Presumably President Trump will want to see results sooner than that. What can he do to dismantle the ACA on Day 1?
I imagine that lawyers on the Trump transition team have been puzzling over this question for the last month. I am not a health law expert, and President-elect Trump hasn’t asked me for my thoughts on the matter. But if he did, I’d tell him: The ACA isn’t so easy to undo through the exercise of executive power.
For purposes of this post, I’ll focus on five moves that others have suggested Trump might make in the early days of his presidency: (1) dropping the Obama administration’s appeal to the D.C. Circuit in House v. Burwell; (2) halting reinsurance payments to insurers; (3) blocking any settlement of the risk corridor lawsuits; (4) granting waivers to states under section 1332; and (5) changing the definition of “essential health benefits” through regulatory action. In brief: (1), (2), and (3) are all within the President’s power, but they won’t accomplish much. Option (4) would run aground on the shoals of judicial review, if not before then. And (5) might be possible legally, but it would be disastrous politically.
1. House v. Burwell. On his first day in the Oval Office, President Trump can (and maybe will) tell the Justice Department to drop its appeal to the D.C. Circuit in House v. Burwell. The issue in that case is whether the Department of Health and Human Services can compensate insurers for making the cost-sharing reductions necessary to comply with section 1402 of the ACA, given that Congress has refused to appropriate funds for such payments. Under section 1402 (42 U.S.C. § 18071), silver level health plans offered on ACA exchanges must reduce copays and deductibles such that the plans cover 70% of costs for individuals whose household income is more than 2.5 times the poverty line, scaling up to 94% for individuals whose household income is between 1 and 1.5 times the poverty line. Section 1402 requires HHS to “make periodic and timely payments” to insurers in order to compensate them for these “cost sharing reductions,” but the statute does not appropriate funds for that purpose. In May, a D.C. federal district court judge ruled that HHS can’t make payments to insurers pursuant to section 1402 unless and until Congress appropriates funds (which it won’t). If Trump drops the appeal, then presumably the district court’s ruling stands and the payments from HHS to insurers stop.
And then what? Section 1402 still applies with full force, so insurers selling silver plans on exchanges to individuals below four times the poverty line still have to make the cost-sharing reductions that the statute requires. Presumably insurers will respond by raising premiums for their silver plans. But low-income individuals enrolling in silver plans generally won’t have to pay out of their own pockets, because 26 U.S.C. § 36B provides a tax credit for individuals under four times the poverty line who purchase insurance on exchanges, and that tax credit is keyed to the price of the second lowest cost silver plan available to that individual. The credit ensures that individuals making four times the poverty line pay no more than 9.5% of their household income for the second lowest cost silver plan, scaling down to 2% of household income for individuals making less than 1.33 times the poverty line. So if Trump drops the appeal in House v. Burwell, silver plan premiums will go up, and credits will rise commensurately. The biggest winners are individuals whose credits grow and who use those credits to purchase gold plans (the premiums for which probably won’t go up because gold plans aren’t subject to section 1402). The biggest loser is the U.S. Treasury: the reduction in payments to insurers for silver plans is offset by the increase in credits for individuals enrolling in silver plans, and now the Treasury is paying more than it was before to individuals enrolling in gold plans. The ACA survives intact, except now the subsidy for purchasing a gold plan on an exchange is even more generous.
2. Transitional Reinsurance. On Day 1, President Trump also can order HHS to prioritize payments to the Treasury over payments to insurers under the transitional reinsurance program established under section 1341 (42 U.S.C. § 18061). That provision effectively requires HHS to transfer funds from insurers who cover low-risk individuals to insurers who cover high-risk patients in the individual market. The statute instructs HHS to collect $12 billion from insurers for 2014, $8 billion for 2015, and $5 billion for 2016. Most of that money is supposed to go to insurers that cover high-risk individuals, but the statute also instructs HHS to deposit $2 billion from those collections with the Treasury in 2014, $2 billion in 2015, and $1 billion in 2016.
Here’s the problem: HHS’s contribution formula led to a shortfall of funding for the reinsurance program, and so HHS had to choose how to allocate scarce funds between the insurers and the Treasury. It chose to prioritize payments to the insurers. Republicans in Congress objected. The Government Accountability Office concluded that the Republicans are right and that HHS must make the required contributions to the Treasury before it disburses funds to insurers covering high-risk individuals.
President Trump can tell HHS to stop making payments to insurers under section 1341 for the 2015 and 2016 benefit years and to redirect those funds to the Treasury. But HHS indicated in June that at least $7.9 billion has gone out to insurers already for the 2014 benefit year — and possibly more by now for the 2015 benefit year. Even if the Trump administration halts further payments, it’s not clear how that weakens the ACA. Insurers would experience a negative wealth shock, but why should that affect what plans they offer? Presumably they will continue to operate in markets where their plans are profitable — the loss of section 1341 payments is a sunk cost. Moreover, the transitional reinsurance program is just that: transitional. It covers only the 2014, 2015, and 2016 benefit years, so there is no obvious reason why it would affect the sorts of plans offered in 2017 and beyond.
3. Risk Corridor Lawsuits. The risk corridor controversy is the polar opposite of the transitional reinsurance dispute: the claim here is that HHS hasn’t paid insurers what it should have (whereas the GAO’s conclusion with respect to the transitional reinsurance program was that HHS paid insurers what it shouldn’t have). Section 1342 of the ACA (42 U.S.C. § 18062) requires HHS to establish and administer a program of “risk corridors” for 2014, 2015, and 2016 that limit the losses for insurers offering plans on the individual and small group markets those years. The statute sets a “target amount” for each plan equal to total premiums minus administrative costs. It then guarantees that if the cost of benefits under the plan exceed 103% of the target amount, HHS will cover 50% of the overage, rising to 80% of the overage if costs exceed 108% of the target. If, by contrast, the cost of benefits under the plan is less than 97% of the target amount, the insurer must pay HHS 50% of the difference (and 80% when costs dip below 92% of the target).
Significantly, the statute is phrased in mandatory terms: HHS “shall pay . . . .” If obligations to unprofitable plans exceed collections from profitable plans, the government must fill in the gap. The problem is that congressional Republicans attached riders to spending bills in 2014 and 2015 stating that HHS cannot use money from anywhere else to pay risk corridor expenses. The result is that the statute says HHS “shall pay” insurers while Congress says HHS shall not.
Insurers owed money under the risk corridor program responded by suing the federal government. Justice Department officials have reportedly talked to insurers about settling. President Trump conceivably could tell Justice Department officials not to settle and instead to fight the insurers in court. But to what end? The insurers have a very strong statutory argument and they’re likely to prevail in court. The Trump administration might refuse even then to pay up, though that strikes me as playing with fire: it would effectively amount to the U.S. government defaulting on a court-determined debt. What would that do to the full faith and credit of the United States? And what effect would it have on benefits in 2017 and beyond, given that the risk corridor program ends this year? Again, it would amount to a negative wealth shock for insurers, with no obvious implications for plan offerings going forward.
4. Section 1332 Waivers. Section 1332 of the ACA (42 U.S.C. § 18052) allows HHS and Treasury to waive large parts of the ACA — including the “essential health benefits” requirement and the individual and employer mandates — in states that submit plans satisfying certain statutory criteria. (Note, though, that the guaranteed issue and adjusted community rating provisions of the ACA cannot be waived under section 1332.) HHS and Treasury may grant a waiver request only if the Office of the Actuary of the Centers for Medicare & Medicaid Services certifies that the state plan will provide coverage “at least as comprehensive” as the ACA’s “essential health benefits” package, and if such coverage is “at least as affordable” and reaches “at least a comparable number” of people as would be covered under the ACA — all without increasing the federal deficit. Waivers may be granted starting January 1, 2017, and may last as long as five years.
Does section 1332 provide an “exit strategy” for states that want out of the ACA immediately — and could the Trump administration, as traffic cop, accelerate these exits? I don’t think so. First, the chief actuary of CMS is not himself a presidential appointee and is removable only for cause. Second, section 1332 waiver would be a “final agency action,” and so would be reviewable under the Administrative Procedure Act. If states can devise alternatives to the ACA that satisfy statutory criteria, then yes, section 1332 offers a route out. But it’s not at all clear how they could do that without re-imposing the individual and employer mandates at the state level.
5. “Essential Health Benefits.” Section 1302 of the ACA (42 U.S.C. § 18022) instructs HHS to issue regulations defining the set of “essential health benefits” that non-grandfathered individual and small group plans must provide. HHS’s regulatory discretion is not unbounded: if HHS wants to revise the regulatory definition, it must submit a report to the relevant congressional committees containing a certification from the CMS chief actuary that the scope of such benefits “is equal to the scope of benefits provided under a typical employer plan.” Moreover, the package of essential health benefits must (by statute) include services within 10 specific categories, ranging from maternity and newborn care to mental health and substance abuse treatment.
These statutory requirements might still leave the Trump administration some wiggle room to make the “essential health benefits” package slightly less generous. But each regulatory change will be subject to judicial review under the Administrative Procedure Act’s “arbitrary and capricious” standard, and even if these regulatory changes hold up in court, they may fare worse in the court of public opinion. Imagine the political fallout when the Trump administration tells diabetes patients that insurance will no longer pay for their insulin pumps, or tells parents that their children’s glasses frames aren’t covered anymore — all so that premiums decline marketwide. This is exactly the box of the Wilson-Hayes matrix that you don’t want to be in: concentrated costs, diffuse benefits. Even if Trump’s legal advisers tell him he can do this (and again, he would need the CMS actuary to sign off), his political advisers might not be so enthusiastic.
This list is nonexhaustive (and I anticipate I’ll hear from others that I’ve left a number of possibilities out). The bottom line, though, is that if Trump wants to dismantle the ACA, then he’ll need to repeal (and replace?) rather than drop lawsuits and deregulate.
