The Senate’s Proposed King Fix is Flawed

by Nicholas Bagley — Tuesday, Apr. 28, 2015

If the government loses in King v. Burwell, Congress will come under intense pressure to restore insurance subsidies in the 34 states that refused to set up their own exchanges. Anticipating the tricky post-King politics, Senate Republicans appear to have coalesced around a bill crafted by Senator Johnson that would extend subsidies through 2017 to those who have already bought exchange plans.

“The idea,” as Greg Sargent explains, “is to buy time to develop a more comprehensive GOP replacement for Obamacare.” In addition to restoring subsidies, however, Johnson’s bill also repeals the individual mandate. As Larry Levitt has observed, that’s problematic: “[i]f there is no mandate, but still protections for people with pre-existing conditions, premiums would inevitably rise.”

But what if the Johnson bill does repeal the protections for those with preexisting conditions? On one reading, as I explain below, that’s just what the bill would accomplish. Now, that’s not what Johnson says his bill would do. And I think there’s a narrower way to read it, although that reading also creates problems. Careless drafting, though, is what got us into the King mess in the first place. Any fix should be scrupulously precise—and the Johnson bill isn’t.

What’s the problematic language in the Johnson bill?

Among other things, the bill would amend the ACA’s grandfather provision, which exempts health plans in which an individual was enrolled at the time the statute was enacted (March 2010) from the ACA’s new insurance rules. Grandfathered health plans in the individual market can thus exclude people with preexisting conditions, charge sicker people more for coverage, and impose annual limits on coverage.

The ACA’s grandfather clause is narrow. Most significantly, grandfathered plans can’t accept new enrollees (save for family members of current enrollees and, for employer-sponsored plans, new employees). And HHS rules say that a plan is no longer grandfathered if it makes even modest changes to its benefits package or its cost-sharing obligations. That’s why there aren’t many grandfathered plans left.

Johnson’s bill would blow the grandfather clause wide open. Instead of applying only to plans in which an individual was enrolled in March 2010, the amended grandfather clause would apply to any plan “in which an individual was enrolled during any part of the period beginning on the date of enactment of this Act and ending on December 31, 2017.”

It’s hard to say for sure what this language would accomplish. On the broadest reading, it suggests that every health plan would be grandfathered, which would effectively repeal most of the ACA’s new insurance rules. After all, every plan on the market has enrolled—or will enroll—people in the 2010 to 2017 period. On that reading, the Senate leadership just co-sponsored a bill that would undo the ACA’s protections for people with preexisting conditions.

Is there any other way to read the Johnson bill?

Fortunately, the bill can be read more narrowly. It applies to plans “in which an individual was enrolled during any part of the period” from 2010 through 2017. The “was” suggests that, as to an individual, grandfathering can only be triggered by past enrollment.

What that means is that a plan is not grandfathered when, say, it first sells coverage to an individual for 2015. The plan is not one in which the individual “was enrolled.” That plan would instead become grandfathered only when that individual seeks to renew that coverage for 2016. Weird, right?

Even on this narrower interpretation, the bill could cause mischief on the exchanges. Imagine that you first got coverage on the exchange in 2015 and then sought to renew that coverage for 2016. Because you originally enrolled in the plan prior to December 31, 2017, the plan will be grandfathered for purposes of renewal—and thus not subject to the new ACA prohibitions on discrimination.

You could renew your coverage because HIPAA rules requiring such renewal would still apply to grandfathered plans. But those rules don’t circumscribe plans’ ability to raise their premiums, so some plans might try to charge you through the wazoo. Alternatively, your entire plan could just shut down if it discovered that too many of its enrollees were sick.

Now, you could always buy a different health plan through an exchange. Those plans wouldn’t be grandfathered (at least with respect to your coverage) and would still have to adhere to the ACA’s insurance rules. But who would be shopping for new plans on the exchanges? Disproportionately, it would be those unhealthy people who were forced out of their old plans.

Faced with unbalanced risk pools, exchange plans would have to raise their premiums. Doing so would not only make it harder for people to afford coverage. It would also increase federal expenditures on subsidies, which are keyed to the price of the second-cheapest silver plan on the exchange.

At best, then, the Johnson bill would undermine the exchanges and increase federal spending. At worst, it would repeal ACA provisions designed to stamp out discrimination in insurance markets. Either way, Senate Republicans have more work to do if they want to come up with a plausible response to King.

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About Nicholas Bagley

Nicholas Bagley is a Professor of Law at the University of Michigan Law School.

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