Obamacare Case Argued at High Court
Colorado's healthcare system faces shock if ACA tossed

by Hank Lacey

Correction: This article was updated on Nov. 17 to correct the spelling of the name of Professor Govind Persad.

The U.S. Supreme Court heard arguments Nov. 10 in another challenge to the  Affordable Care Act, which has become the foundation of expanded access to healthcare across the nation during the decade since it was enacted. The justices considered whether a clause of the law that establishes a requirement to obtain health insurance, but imposes no fee, is constitutional and whether the rest of Obamacare can survive a ruling that it is not.

The court, divided 6-3 between Republican-appointed judges and their Democratic counterparts, did not appear to achieve a consensus on either of those questions, though the comments of Justice Brett Kavanaugh provided some indication that there is not an ideological divide on the question whether to strike down the whole ACA. He told an attorney for Texas, which has argued for the invalidation of the act, that “it does seem fairly clear that the proper remedy” is to sever the penalty clause from the other provisions.

Jennifer Evans, a healthcare attorney at Polsinelli and a former deputy director of the state’s Department of Healthcare Policy and Financing during Gov. Bill Ritter’s administration, said that she thinks the question whether to uphold the bulk of the ACA if the penalty language is found invalid is not a difficult one. “Congress is really good at saying, ‘if one element of it is found to be unconstitutional, the rest cannot stay,’” she said. “They didn’t do that here.”

Amy Howe, a reporter who covers the court for the influential SCOTUSblog, thinks the arguments indicate a reluctance by the majority of the court to invalidate the entire ACA. “I’m not sure whether there was a consensus, but it did seem like there were at least five votes to keep the rest of the ACA in place even if the penalty clause is unconstitutional,” she said in an email. “The three more liberal justices are certain to agree that the clause can be ‘severed,’ and at least two of the conservative justices — Kavanaugh and [John] Roberts — seemed to be fairly squarely on the side of leaving the rest of the ACA in place.” Howe added that both Roberts and Kavanaugh wrote opinions for the court last year that indicate they are skeptical of non-severability arguments in the case.

The justices also seemed to be divided on the question of whether the penalty clause, which originally required uninsured Americans to pay a $750 income tax sanction but which was zeroed out by Congress in 2017, can survive constitutional scrutiny. “Some said that it was hard to justify the clause as a ‘tax,’ as the court did in 2012, when it no longer raises revenue, while the court’s more liberal justices seemed more likely to uphold it,” Howe said. Justice Neil Gorsuch seemed skeptical about whether it can. He remarked to former solicitor general Donald Verrilli, who was arguing in defense of the ACA on behalf of the U.S. House of Representatives, that a tax penalty that raises no revenue may need to be justified on other grounds. Justice Elena Kagan, on the other hand, made the point that reducing the penalty to nothing simply made it “less coercive” and, therefore, it cannot be less unconstitutional than when it required taxpayers without insurance to pay something.

Whether the penalty clause is a constitutional infirmity in the Obamacare law is a question that previously reached the high court in the NFIB v. Sebelius case. A five-justice majority led by Roberts held then that the measure is justified under Congress’ power to tax. A coalition of states, led by Texas, attacked the ACA again shortly thereafter in a federal district court in Fort Worth. U.S. District Judge Reed O’Connor, an appointee of President George W. Bush, held in Dec. 2018 that the elimination of a tax penalty meant the law could no longer be justified as an exercise of the taxing power, refused to sever it from the rest of the ACA and held the entire law unconstitutional. The 5th Circuit Court of Appeals later affirmed that decision.

The court could decide to uphold the ACA, even if the penalty clause at issue in the Sebelius case is struck down, because Texas’ arguments might reflect a misunderstanding about the way the law works. Craig Konnoth, a professor at CU Law School, said he believes the individual mandate set up a two-pronged analysis by the justices in their 2012 opinion. “Texas is arguing that NFIB read it only as an option,” he said. “I think NFIB has two separate parts. One is that the [penalty payment] is an option. Number two, the part of the option that says you have to pay a tax if you don’t get insurance is constitutional because it is a tax and not a penalty. All they’ve done is they’ve cut out the second step.”

For Colorado, a decision striking down the entirety of the ACA would have a grievous impact on the state’s Medicaid expansion. The federal government pays 90% of the cost involved in adding citizens to the public program under Colorado’s 2013 Medicaid expansion law. If the entire ACA were struck down, Evans said, the state would suffer a huge blow to both healthcare access and its economy. “We get, in Colorado, about 2 billion, with a ‘b,’ dollars a year in federal funds to pay for the federal share of Medicaid for the expansion population,” she explained. “That $2 billion dollars taken out of our economy is not $2 billion that gets spent in Colorado one time. It’s $2 billion that gets spent in Colorado several times. The amplification effect is real. The idea of losing that amount of money out of our state economy would be a really big deal.”

Colorado’s General Assembly would face a choice between accepting the contraction in the number of individuals covered by Medicaid, which would mean that healthcare providers would likely see more patients that cannot pay for services, or coming up with money to replace the federal contribution. Rep. Dafna Michaelson Jenet, D-Commerce City, fears that a ruling that annuls the ACA would likely mean that nearly half a million state residents lose Medicaid coverage because the state’s fiscal situation does not allow it to replace dollars from the U.S. treasury. “We’d be in a world of hurt,” she said. “Without the money to backfill the federal [contribution], I’m not sure at this point how we will take care of these 480,000 people. Gov. Jared Polis told the General Assembly’s Joint Budget Committee Nov. 12 that Colorado could face a budget shortfall of about $1.8 billion for FY 2022-2023.

That shrinkage of the Medicaid pool would also hurt healthcare providers. Evans said the prospect of the ACA being nullified brings hospitals, physicians and other actors in the healthcare sector a high degree of worry. “That uncertainty is a very big deal,” she said. Jenet pointed out that an end to the state’s Medicaid expansion program would impose the same high costs of providing emergency care to indigent patients that existed before the law was enacted. “The burden that it’s going to place on our system in emergency care and emergency room treatment because of not having access to your primary care physician anymore is going to be astronomical,” Jenet said.

“Where uninsurance rises, [hospitals’] uncompensated costs go way up,” Evans said. “That has an impact on their business, but it really has an impact on everyone in that community because the hospital has to make up for the value of furnishing that uncompensated care in other ways.”

Another pitfall that may appear if the high court explodes the ACA is damage to  the state-sponsored marketplace. Individuals are encouraged to participate in it by a tax credit. “We are going to see what we call the individual market get a lot more expensive” if the ACA goes away, Jenet said, because it helps consumers afford coverage. “That tax credit really helps to alleviate the cost for an individual or a family,” she said.

According to the Kaiser Family Foundation, the value of that tax credit for an individual in 2021 will range from $12,760 to $51,040 and from $26,200 to $104,800 for a family of four. Without those subsidies, fewer healthy individuals would purchase plans on the marketplace, and the plans sold there would consequently include a much higher proportion of unhealthy policyholders. “It would become very difficult for plans to survive if they were still providing guaranteed issue,” Govind Persad, an assistant professor at the University of Denver’s Sturm College of Law who specializes in health law, said.

Beyond that problem, ACA nullification by the high court would cause havoc in the Medicare program and with the ways that providers are paid for the services they make available to patients. “[There are] implications for Medicare Part D, the way the ACA closes the coverage gap there,” Persad said. “The ACA sets up in some of its other titles a variety of innovative payment mechanisms that have to do more with the provider side, things like accountable care organizations for Medicare beneficiaries, some provisions around fraud and abuse enforcement, bundled payments, various other health policy quality improving or cost saving innovations.”

There are some ways in which states could address the consequences of an ACA termination. One potential response would be to institute a state mandatory coverage requirement. California, Massachusetts, New Jersey, Rhode Island, Vermont, and the District of Columbia have chosen this method of assuring that healthcare providers do not spread uncompensated costs among patients. “There’s no constitutional problem with states doing that,” Persad said. This approach can be used to lower the cost of insurance premiums or to provide coinsurance.

Another tactic is to require coverage of pre-existing conditions. This, according to Persad, runs into a number of difficulties. He said that the federal Employment Retirement Income Security Act prevents states from regulating some employer-provided health insurance plans. “There would be challenges for states in trying to enforce the pre-existing condition protections,” he explained. Some states have also instituted reinsurance programs, state-funded increased subsidies to individual marketplace participants, regulation of health insurance policies purchased outside of the marketplaces, and public health care plans. Govad said that it may also be possible for states to increase the reach of the original Medicaid program to the working poor within their borders.

The problem, Persad said, is that states cannot replicate the features of the ACA that are less commonly noticed by the public, including the impacts of the landmark law on the Medicare program., Meanwhile, providers have come to rely on those changes as they shape the way they deliver healthcare. “It’s like Dorothy,” he said. “You’re not in Kansas and maybe you can’t go back.”

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