American Benefits Council
Benefits Byte


July 22, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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Conflicting Circuit Court Decisions Raise Questions about PPACA Subsidies in Federal Exchanges

Two separate and conflicting decisions handed down on July 22 call into question the legality of providing federal subsidies for individuals obtaining coverage in federally facilitated health insurance exchanges. The matter could have far-reaching implications for immediate and long-term implementation of the Patient Protection and Affordable Care Act.

Both cases spring from unclear drafting during development of PPACA, in which the statutory language allows for the provision of subsidies to individuals in “state-based” exchanges. Almost since the law was enacted, it led to questions whether subsidies were to be available to people obtaining coverage in federally-operated exchanges. There are currently 36 states in which the exchanges are operated by the federal government, with an estimated five million individuals receiving subsidies in those exchanges. The Obama Administration thought it settled the question through regulations stating that subsidies are available in the exchanges that the federal government runs for the states.

The U.S. Court of Appeals for the District of Columbia Circuit released a 2-to-1 ruling on July 22 saying that PPACA subsidies are not legally allowed for policies purchased on federally facilitated exchanges.

According to the majority opinion, “The government urges us, in effect, to strike . . . the phrase ‘established by the state,’ on the ground that giving force to its plain meaning renders other provisions of the Act absurd. But we find that the government has failed to make the extraordinary showing required for such judicial rewriting of an act of Congress. Nothing about the imperative to read [the exchange provision] in harmony with the rest of the ACA requires interpreting ‘established by the state’ to mean anything other than what it plainly says.”

The D.C. circuit’s panel decision has been temporarily “stayed” while the government asks the full D.C. circuit to review the case en banc. If they agree to do so, they could either uphold or overturn the decision of the three-judge panel. While the government will want a speedy decision, it is very possible a decision will not be rendered until the fall.

Meanwhile, within hours of the D.C. circuit’s decision, a separate three-judge panel of the U.S. Court of Appeals for the Fourth Circuit issued a unanimous ruling finding the opposite, ruling that PPACA subsidies are indeed allowed for policies purchased on federally facilitated exchanges.

The lead opinion gives the Internal Revenue Service (IRS) broad authority to interpret the statutory language, saying, “the Act clearly gives to the IRS authority to resolve ambiguities … (“The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section”). This clear delegation of authority to the IRS relieves us of any possible doubt regarding the propriety of relying on one agency’s interpretation of a single piece of a jointly-administered statute.”

The same issue is at the center of similar cases that are at an earlier stage of litigation in other federal circuits. A split among the circuits would make a review by the U.S. Supreme Court more likely, though the timing of such consideration is very uncertain.

The Council issued a statement to the media on July 22, with Council President James Klein saying that the conflicting rulings “inject enormous uncertainty into implementation of the health care law and raises intriguing questions about its future.”

Since the employer mandate penalty is specifically triggered by an employee’s collection of a subsidy in an exchange, if the D.C. Circuit court decision stands, some employers may be relieved of penalties, or may have different levels of penalties, depending on which states their workers reside. Also, for those employers that have considered whether their employees might be better served through steady coverage in exchanges, especially where their workers move from job to job, the lack of subsidies for moderate income workers in some states certainly would change the dynamics in that decision making.

The conflicting rulings also raise questions about the future of PPACA for other stakeholders, including:

What actions might Congress take? Congressional Democrats might draft legislation explicitly clarifying that subsidies are available in the federal exchanges, though other Democrats may take the position that the law already allows it and no further legislation is needed (and such legislation might undermine legal defense of the law). In any case, Congressional Republicans certainly would seek to block such legislation but may pursue ongoing efforts to invalidate other elements of the law.

What actions might the regulatory agencies take? The Obama Administration may conclude that it is necessary to delay certain requirements for individuals, employers or other stakeholders if judicial clarity is not forthcoming. Despite ongoing delays in the issuance of necessary reporting forms and instructions, IRS officials have to this point been reluctant to provide additional transition relief for the employer “shared responsibility” mandate. It is difficult to surmise right now whether the uncertainty created by the court decision would encourage a further delay in the employer responsibilities provisions of the law or make the Administration more determined to keep employers engaged in sponsoring coverage. Separately, health care issuers are supposed to decide by July 31 whether they will participate in exchanges next year and the uncertainty of available subsidies in federally-run exchanges could significantly complicate that decision. For its part, the White House responded to the D.C. circuit court decision by stating that subsidies will continue to be provided while the litigation proceeds.

How will the states react? Because individuals still are legally required to obtain coverage under the law, some states may feel pressure to establish their own exchange to ensure their citizens receive subsidies. Ironically, some states currently operating exchanges have contemplated opting for the federal exchange. Some states may also decide to expand Medicaid eligibility so that more low-income individuals will get some federal financial assistance. It is equally possible that other states will view the current uncertainty as a reason to hold back from making decisions.

What does this mean for individuals? If the lack of a subsidy makes coverage unaffordable for some people, those individuals will not be subject to the individual mandate penalty and may forego coverage – especially if they are generally healthy. Even where individuals might be subject to a penalty because, as a technical matter, it is deemed “affordable,” as a practical matter it may be less financially burdensome to pay the penalty than to purchase coverage without a premium tax credit. If healthy people do not participate in the exchanges, the cost of coverage for those that do will undoubtedly rise.

The Council will provide additional analysis as this matter further develops. For more information, contact Kathryn Wilber, senior counsel, health policy, or Katy Spangler, senior vice president, health policy, at (202) 289-6700.

House Energy and Commerce Committee Continues Exploration of Health Care Technology

Following an exploratory discussion on June 24 on health care technology and innovation, The House of Representatives Energy and Commerce Committee held a joint subcommittee hearing on July 17 to identify the current technological advancements in health care and the potential of technology within health care. The hearing, entitled 21st Century Technology for 21st Century Cures, focused on examining ways to ensure that the U.S. health care system can take advantage of the innovations occurring in technology and addressing the barriers to integration.

Communications and Technology Subcommittee Chairman Greg Walden (R-OR) spoke in his opening statement about the “virtuous cycle” of technology: “As health care technologies proliferate, patients, doctors, and researchers will realize the potential for technology, and as a result, demand will increase. Increased demand means even greater incentive for investors to place their bets on the technology, which in turn spurs the cycle even further.” Chairman of the Health Subcommittee Joseph R. Pitts (R-PA) said that it was necessary to examine the discovery, development and delivery process to speed new treatments and cures to patients.

Ranking Member of the Health Subcommittee Frank Pallone, Jr. (D-NJ) said that the goal is not just to improve patient outcomes, but also potentially to reduce costs. Ranking Member of the full Energy and Commerce Committee Henry Waxman (D-CA) stated that the Patient Protection and Affordable Care Act (PPACA) has put pressure on stakeholders to reduce costs, and new technologies have the potential to further reduce costs.

The committee heard testimony from the following witnesses:

  • Dave Vockell, chief executive officer of Lyfechannel, suggested that there is a strong economic incentive to withhold patient data, but there are a handful of innovative institutions that have provided momentum, such as the Centers for Medicare and Medicaid Services (CMS) releasing Medicare billing data to the public “with the willingness to publish data without it being perfect.”
  • Dan Riskin, founder of Health Fidelity, described how data-driven care can result in a more efficient, effective and approachable health care system that provides high quality care at an affordable price and recommended redefining interoperability to share the information that is needed for clinical analytics and population health.
  • Robert Jarrin, senior director of government affairs at Qualcomm Incorporated (a Council member company), noted that current Medicare telehealth reimbursement provisionslimit patient access to new technologies and effectively discourage providers from utilizing advanced information communications in their practices.
  • Jonathan Niloff, chief medical officer and vice president of McKesson Connected Care and Analytics, recommended aligning payment and care models to fully harness the potential of interoperable technology. He also suggested development of a new risk-based regulatory framework specific to health IT and amending the Food, Drug and Cosmetic Act to provide clarity that clinical and administrative software should not be regulated as a “medical device. 
  • Paul Misener, vice president of global public policy at Amazon, explained many benefits of cloud computing for health care, including the increased ability for researchers to openly share their data. 

The committee will continue its “21st Century Cures” series with a roundtable discussion on Wednesday, July 23 to discuss how the rise of personalized medicine and advances in science and technology can shape the health care system in the 21st century.

For more information, contact Katy Spangler, senior vice president, health policy, at (202) 289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

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