THE AFFORDABLE CARE ACT IS NOW HERE TO STAY

The Patient Protection and Affordable Care Act (also known as the ACA or Obamacare) was signed into law on March 23, 2010. It was over 900-pages long, the most comprehensive legislative health reform the U.S. had seen in over two generations. This article traces the ACA’s brief history, its obstacles, and where it stands today, five years after passage.

What the ACA does

When the ACA was passed, the U.S. health care system was in crisis. Health care consumed 17% of U.S. gross domestic product, health care costs were rising uncontrollably, and for all that spending, in excess of 50 million people (more than 16% of the population) were uninsured. Although the ACA significantly changed the landscape of U.S. health policy, it built on the fragmented, complex, and imperfect system that already existed. Thus, the ACA itself is fragmented, complex, and imperfect.

The ACA attempts to achieve the “triple aim” of health care: improving the experience of care (quality), improving the health of populations (access), and reducing per capita costs (cost). The most significant reform was a dramatic increase in health coverage for the millions of uninsured individuals.

About half the increase in coverage was to be accomplished through an expansion of the government program Medicaid to cover all poor persons making up to 138% of the federal poverty level. Previously, Medicaid only covered certain categories of “deserving poor,” such as the disabled, children, or pregnant women, but childless, able-bodied adults were generally excluded.

The other half of increased coverage would be accomplished through expansions in the private health insurance market, necessitating several key reforms, often called the “three legged stool”:

  • The first leg consists of new rules for health insurance companies requiring them to adopt nondiscriminatory coverage through guaranteed issue (an applicant cannot be denied coverage due to health status) and community rating for health insurance premiums (premium does not vary by health status). These new nondiscriminatory health policies would all have to cover the “essential health benefits” and would be sold in new online marketplaces called “exchanges.”
  • The second leg is the so-called individual mandate, which requires nearly all persons to have health insurance coverage or pay a penalty. The individual mandate is necessary to prevent adverse selection in the insurance risk pool by encouraging young and healthy individuals to participate. Individuals can satisfy the individual mandate through employer coverage, purchasing individual coverage in the ACA’s new health insurance exchanges, or maintaining government coverage (e.g., Medicare, Medicaid, or veteran’s benefits).
  • The third leg of the stool is the premium assistance tax credits, or subsidies, that makes purchasing health insurance affordable for those who earn between 100-400% of the federal poverty level.

As with any three-legged stool, if you remove any of the legs, the stool falls down. The ACA’s reforms were a complicated web of interdependent policies that could be threatened if opponents successfully struck down any one provision.

From the time of its passage, there has been deep political division about the ACA. Not a single Republican member of Congress voted for its passage. Immediately, opponents began mounting legal challenges in attempt to dismantle the law. Republican-led state governments have resisted implementing the ACA’s programs. Republicans in Congress have attempted (unsuccessfully) to repeal the ACA over 50 times.

Public opinion about the law has also been divided, mostly along party lines. The most controversial provision of the ACA has been the individual mandate, so it is unsurprising that this second leg of the stool was the subject of the first challenge that went to the Supreme Court.

The first Supreme Court challenge: NFIB v. Sebelius

In 2012, in National Federation of Independent Business v. Sebelius, the Supreme Court considered the constitutionality of two of the ACA’s provisions to expand health coverage, the individual mandate and the Medicaid expansion.

Regarding the individual mandate, the Supreme Court ruled 5-4 that the mandate was a constitutional exercise of Congress’s power to levy taxes, reasoning that the individual mandate was a tax. The decision was somewhat surprising. Lower courts had decided the issue based on whether Congress could impose the individual mandate under its power under the commerce clause of the Constitution. The Supreme Court concluded that although Congress lacked the power under the commerce clause, it had the authority under its taxing power to impose the individual mandate.

Regarding the Medicaid expansion question, the Court concluded 7-2 that the Medicaid expansion was unconstitutionally coercive of the states. Medicaid is jointly operated by the federal government and the states, with each contributing funding and each state operating its own program. By conditioning the continued receipt of existing Medicaid funds on a state’s expansion of the program under the ACA, the federal government was holding a fiscal “gun to the head” of the states, with so much of the states’ budgets depending on the continued receipt of federal Medicaid funds. Five members of the Court then concluded that the proper remedy was to make the Medicaid expansion voluntary for states, separating the receipt of funds for the traditional Medicaid program from the funds to expand Medicaid.

The practical implication of the Supreme Court’s decision in 2012 was that the three-legged health insurance market reform would survive to be implemented in 2014. However, the ruling put a significant hole in the fabric of coverage expansion for the poor by making the Medicaid expansion optional for states. Currently, 30 states and the District of Columbia have expanded Medicaid, and the remaining 21 states, mostly Republican, have not. Low-income individuals in states that have not expanded Medicaid generally remain uninsured, ineligible to receive subsidies to purchase private coverage on the insurance exchanges.

A presidential election and implementation of the ACA

The obstacles for the ACA were not over when the Supreme Court decided the NFIB case. The survival of the law was further solidified, however, when President Obama won reelection in 2012, although Democrats lost seats and control of Congress in the 2012 and 2014 congressional elections. Despite repeated attempts, the Republican-controlled Congress could not repeal the ACA so long as Barack Obama was President, because he would veto any effort to undo his signature domestic policy achievement.

Another big test and turning point occurred in 2014, when most of the ACA’s major reforms went into effect. Before that point, the benefits to individuals were largely theoretical and difficult for ordinary Americans to understand. The Obama administration suffered bad press around the glitch-filled launch of the federal website operating the federal health insurance exchanges, healthcare.gov. The complexities, technical difficulty, and administrative challenge of making the new system work were laid bare, but within a few months, new enrollments were increasing and people started to gain health coverage around the country. Despite a bumpy start, the ACA again seemed to survive a difficult launch and implementation.

The second Supreme Court challenge: King v. Burwell

Challengers again attached the ACA through litigation in the King v. Burwell case. This time, the opponents of the law took aim at the third leg of the stool, the subsidies to help people pay for health insurance on the health insurance exchanges.

The case was about whether the federal government can give subsidies to people who obtain health insurance on an exchange operated by the federal government in a state that has declined to set up its own exchange. The legal question involved a provision of the ACA that provides tax subsidies to people who purchase insurance through an “Exchange established by the State.” Challengers argued this meant subsidies are not permitted in the 34 states where the federal government operates the insurance exchange because the state has declined to do so.

Although King v. Burwell did not involve a constitutional challenge, the core of the ACA health insurance market reforms hung in the balance. Without the subsidies, the health insurance markets in 34 states with federal exchanges would collapse. Over 6 million people who currently receive the subsidies would be unable to afford health insurance. The individual mandate would not apply to them, and those who continue to purchase coverage without subsidies would be sicker than those who drop coverage. When healthier people drop out of the insurance market, this drives up premiums and leads to what is known as a health insurance death spiral.

On June 25, 2015 the Supreme Court upheld the ACA’s premium subsidies in federal exchanges in a 6-3 decision, written by Chief Justice John Roberts. This decision marked a huge win for the Obama administration, for the millions of people who receive subsidies to buy health insurance on federal exchanges, and for health care industry that would have been destabilized by a contrary ruling.

Importantly, the Court’s opinion did not rely on the administrative law doctrine of agency deference to uphold the IRS’ interpretation permitting premium subsidies on federal exchanges. Instead, the Court made the interpretation itself, relying on the ACA’s broader context and structure to construe an otherwise ambiguous provision of the law. This means that a future (Republican) administration cannot reinterpret the ACA to remove the subsidies from the federal exchanges. It also means the political issue of removing federal subsidies with the stroke of a pen is off the table for the 2016 presidential election.

Where the ACA stands today

Now in its fifth year, the ACA appears to be working. About 17 million people have gained health coverage; health care cost growth has slowed dramatically (due in part to the ACA, but largely because of the economic recession); and dire predictions about the effect of the ACA on employers and the larger economy have not come true.

The ACA has withstood two major Supreme Court challenges and a presidential election in 2012. It appears the ACA is here to stay. There are at least three reasons the ACA is becoming increasingly entrenched:

(1) Millions of individuals nationwide now benefit from the ACA’s expansion of insurance coverage and premium assistance;

(2) The health care industry and states have sunk considerable resources and time to implementing the ACA and do not want to abandon that effort in favor of repeal or a replacement; and

(3) The Supreme Court, led by Chief Justice Roberts, has twice reviewed and turned away fundamental challenges to the ACA, upholding its core purposes. In both opinions, the politically conservative Chief Justice used pragmatic reasoning to read the ACA in the context of Congress’s goals to improve health insurance markets, protecting this major legislative enactment against judicial undoing.

These are three powerful tides pulling in favor of the ACA’s survival and pushing against its repeal.

Behavioral economics describes the principles of “status quo bias” and the “endowment effect,” which mean that individuals and institutions favor maintaining the status quo, especially when one is receiving benefits, over retrenchment or change.

Now that millions of individuals are receiving the ACA’s benefits and states and industry have invested in the implementation of the ACA, there is a significant political inertia against any change that takes those benefits and investments away. The ACA is more rooted than it was the first time the Supreme Court upheld it in 2012, and it is likely here to stay.

By Erin C. Fuse Brown, JD, MPH

Erin C. Fuse Brown, assistant professor of law at Georgia State University College of Law, is a faculty member of the Center for Law, Health & Society. Her research interests are in the intersection of the business and regulation of health care delivery systems. Her recent scholarship has focused on policies affecting hospital prices for health care services and on the structural fragility of the right to health care in the Affordable Care Act.

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