#TexasFoldEm: Here's why I'm even more worried about an injunction than the ruling itself.

2018 MIDTERM ELECTION

Time: D H M S

 

Welp. This doesn't look good. As I noted earlier this afternoon, the insane #TexasFoldEm lawsuit held their oral arguments today, and as expected, the Republican-appointed judge in the case, Reed O'Connor, isn't exactly a fan of the ACA. Paul Demko lays out the bottom line in Politico:

U.S. District Court Judge Reed O'Connor, a George W. Bush appointee, vigorously questioned attorneys during the three-hour hearing but gave no indication when he would rule.

Lawyers for the Trump administration partially agreed with the red states' argument, concluding that the removal of Obamacare's individual mandate requires striking down the law's insurance provisions, including protections for people with preexisting medical conditions.

But the administration disagreed on the need for immediate action, arguing that any remedies should not be applied until next year.

"There could be the potential for chaos in the insurance markets," said Brett Shumate, a deputy assistant attorney general with the Justice Department, noting that open enrollment for 2019 starts in just a few weeks.

In other words, they want pre-existing condition protections stripped away...they just don't want it to be done until after the midterms.

Political shamelessness aside, let's talk about the "potential for chaos" that Trump's own DoJ attorney mentioned.

Let's suppose that Judge O'Connor does indeed rule that the entire ACA has to be struck down. As devastating as that may be, it's my understanding that the Democratic Attorneys General would then appeal the case up to the full circuit court. It would then go through the process there, and whichever side loses at that level would then appeal it again up to the U.S. Supreme Court.

This is, after all, one of the (many) reasons why Brent Kavanaugh's SCOTUS confirmation hearing is such a Big Deal...there's a very good chance that he would be the deciding vote in the final word on this case, among many others. The thing is, that will probably be true if the judge ultimately rules in favor of the ACA...presumably the 20 Republican AGs would also appeal the case up the food chain. Either way, the overall case is likely to slog its way through the federal court system for another year or two before ultimately being decided.

HOWEVER...what happens if the judge goes ahead and issues an injunction striking down the ACA's Guaranteed Issue (GI) and Community Rating (CR) provisions effective January 1st, 2019, as the plaintiffs have asked for? What happens then?

Well, politically, it depends on when he does so, as Demko notes above. If he issues the injunction before the November midterms, it'll be devastating for the GOP at the ballot box. If he waits until after November 6th to issue the injunction...well, the GOP will still be hurt with anyone who's been paying attention to the situation..but of course, most people simply don't. Even a full-throated ad/awareness campaign would only do so much to clue people in, and the potential for an injunction isn't nearly as potent as the actual injunction being issued.

Regardless, what would the practical impact of such an injunction be on the individual market (as well as the employer market)? Well, again, that also depends on the timing of the ruling.

You see, the deadline for insurance carriers to actually sign the contracts for 2019 ACA-compliant individual market healthcare coverage is September 25th. That means if the judge issues such an injunction before that date (effective January 1st, 2019), some carriers will likely bail on the exchanges and/or the entire individual market at the last minute.

On the one hand, the ACA market has finally settled down, with most carriers finally making at least a small profit and enough dust settled that many states are actually seeing an expansion of carriers entering their market or expanding coverage areas.

On the other hand, an injunction against guaranteed issue and community rating provisions would utterly upset the entire health insurance market, impacting everything from what plans are offered to what's covered to who's eligible...and it'd even make calculating how much financial assistance people are eligible for nearly impossible.

Why? Because of how the Advance Premium Tax Credits (APTC) are actually calculated. The formula basically says that if the benchmark ACA policy in your area costs more than a certain percentage of your income, you get tax credits to cover the difference.

In other words: Let's say you're a single adult without any kids, earning $30,000/year. That's around 248% of the Federal Poverty Level. According to the ACA formula, if the benchmark plan costs more than around 8.2% of your income, you qualify for subsidies. That's around $2,460/year or $205/month.

OK, so let's say the benchmark plan costs $500/month at full price. In that case, you'd qualify for $295/month in subsidies, or around $3,500 for the year, regardless of whether you enrolled in the benchmark plan or some other policy available on the ACA exchange.

So, what's the "benchmark plan"? Well, under the ACA, it's defined as "the second-least expensive Silver policy available on the exchange". Let's say the following plans are available in a county with 2 carriers (let's say, "Blue Cross" and "Molina", with each one offering 2 Bronze, Silver and Gold policies):

  • Bronze, Blue Cross 1: $200
  • Bronze, Blue Cross 2: $225
  • Bronze, Molina 1: $210
  • Bronze, Molina 2: $215
  • Silver, Blue Cross 1: $450
  • Silver, Blue Cross 2: $500
  • Silver, Molina 1: $525
  • Silver, Molina 2: $550
  • Gold, Blue Cross 1: $700
  • Gold, Blue Cross 2: $725
  • Gold, Molina 1: $680
  • Gold, Molina 2: $690

In this case, the "Blue Cross 2" plan would be the benchmark policy. The enrollee in this situation could apply their $295/month tax credit to any of the policies listed above.

Here's the problem in a "no GI/CR" world, however: How do you decide what the "benchmark Silver" plan actually is?

Under the ACA, "Bronze, Silver, Gold and Platinum" policies have to have a 60%, 70%, 80% or 90% actuarial value...that is, they have to cover 60-90% of the average enrollees healthcare expenses...but that assumes a single risk pool in which every enrollee is averaged into the overall risk assessment.

How can you possibly calculate the "2nd lowest-cost Silver plan" when the cost of that silver plan varies widely depending on the enrollee's medical condition?

If I'm a hemophiliac, for instance, my treatment could cost more than $1 million per year. Does that mean the insurance company would offer Bronze, Silver, Gold or Platinum "Hemophiliac Plans" costing, say, $40,000, $60,000, $80,000 and $100,000 per month? If so, does that mean the "benchmark plan" (let's say the $60K/month policy) would cost 24,000% of my income, and thus would qualify me for...let's see...$59,795/month in federal subsidies, or $717,540 in subsidies per year? After all, that would drop my net cost down to just $205/month.

Then again, without community rating, the insurance carrier wouldn't even have to sell me the policy in the first place.

Of course, some carriers may stick to their guns, pretend the injunction never happened and voluntarily stick with a Guaranteed Issue, Community Rating policy for their 2019 offerings. If they're the only game in town--that is, if they're in a state or county where there aren't any other carriers offering individual market policies anyway--then that probably makes sense.

HOWEVER...what if there's multiple carriers in that region? The odds are that at least one of them is gonna Go Rogue and start medical underwriting again, discriminating against sick people and so forth. That means they'll enroll a bunch of healthy people at dirt-cheap rates, while the carriers which stick to the ACA regulations are stuck with a bunch of people with cancer, diabetes and, yes, hemophilia. If the subsidies skyrocket as in the example above, they'd be OK...except this wouldn't happen until after their 2019 premium rates are locked in for the full calendar year.

In short, this amounts to a Prisoner's Dilemma scenario for the insurance carriers: Do I stick with the program, trusting that all my competition will as well? Or do I Go Rogue on the assumption that at least one other carrier will also, so I don't want to be the one stuck holding the IV bag?

BUT WAIT, THERE'S MORE!

There's some other important dates to keep in mind:

  • 09/25/18: Contract deadline for 2019 exchange participation.
  • 10/15/18: 2019 OEP starts in California.
  • 11/01/18: 2019 OEP starts in the other 49 states +DC.
  • 11/06/18: Midterms.
  • 12/15/18: 2019 OEP ends in most states.
  • 12/16/18 - 1/31/19: 2019 OEP ends in remaining states.

Yes, that's right...2019 Open Enrollment begins on October 15, 2018 in California...and on November 1st in the rest of the country.

And look at the other end: 2019 Open Enrollment ends on December 15th in most states...but a half-dozen or so have extended deadlines baked in, with a few extending all the way out into mid or late January...presumably after such an injunction went into effect.

THIS is the backdrop against which the country would find itself. Even setting aside the panic and chaos on the enrollee side, what about from the insurance carrier side? What would you do if you weren't contractually locked into this insanity? My guess is that you'd bail.

UPDATE: Welp. I guess this depends on what "quickly" means...

Judge O'Connor says he'll rule on a preliminary injunction quickly after today's oral arguments on the ACA case https://t.co/d7vlQw07qG

— Mary Ellen McIntire (@MelMcIntire) September 5, 2018