On March 4, the Supreme Court will hear oral arguments in King v. Burwell—a case challenging the Obama Administration’s IRS ruling granting premium support subsidies to those enrolled in federal exchanges under the Affordable Care Act (ACA). While a ruling against the Administration would preclude paying those subsidies to individuals who obtain coverage through the federally run exchange, that would merely add one more effect to the ongoing complexity and cascade of adverse effects produced by the law’s complex and flawed design.
Congress and the states should therefore seize the opportunity and clear the way for patient-centered, market-based reforms to take root in the states. To start, Congress should devolve the regulatory authority over insurance back to the states. In anticipation of such an exemption, states should use their authority now to put in place their own policies governing insurance.
What Congress and the States Should Not Do
It is critical that any response at the federal or state level not prop up or strengthen the ACA’s troubled framework. Therefore:
- Congress should not preserve the flawed ACA subsidy scheme. Congress should not perpetuate the complex and costly subsidies in the ACA. The design of the subsidies creates major financial incentive for millions of Americans to shift to plans that qualify for the new subsidies; it involves additional rules, restrictions, and penalties; and is administratively complicated.
- States should not adopt state exchanges. States should not pursue efforts to adopt a state exchange. States gain no meaningful flexibility from administering the exchanges, while their long-term costs fall squarely on the states—as any state implementing a state exchange must develop its own revenue source to fund the exchange’s annual operations.
What Congress and the States Should Do
Federal Action: Congress should exempt individuals, employers, and insurance plans in states that have no state exchange from the ACA’s costly rules, regulations, and mandates. The exemption should include items such as the ACA’s rating rules and benefits mandates, as well as formally exempting residents of the affected states from the individual and employer mandates, among others. As is evident from basic premium analysis, in many of the potentially affected states, the cost of coverage was less before the ACA.
State Action: States should pass pre-emptive legislation that would ensure a smooth transition from ACA-compliant plans to state-regulated coverage. States should take the opportunity to review and assess their pre-ACA rules and regulations with attention to making coverage more affordable and available. Action taken in 2011 by the state of Maine provides a template for such pre-emptive legislation. States should consider more flexible rating rules, more affordable benefit packages, more competition through state reciprocity agreements, and other changes that help to facilitate more choice and competition while retaining or restoring pre-ACA portability rules and consumer protections.
The ACA and Its Flawed Policies: Still the Problem
It is important to remember that it is the ACA’s flawed policies that are responsible for the adverse effects that have characterized this law since its inception. Many of the law’s key components—the exchanges, the premium and cost-sharing subsidies, the rating rules, benefit requirements, as well as the individual and employer mandates—are complicated, confusing, and disruptive. A ruling against the Administration creates a unique opportunity to provide individuals who live in states that do not operate an exchange with immediate relief from the costly ACA rules and mandates.
Clearing away the ACA’s flawed policies is the first step toward a patient-centered, market-based health care alternative. That will require a new approach to the tax treatment of health insurance and health care entitlement programs that empowers individuals—not the government or employers—by giving them direct choice and control that allows them to make their own health care decisions.—Nina Owcharenko is Director of the Center for Health Policy Studies and Preston A. Wells, Jr., Fellow, of the Institute for Family, Community, and Opportunity, at The Heritage Foundation. Edmund F. Haislmaier is Senior Research Fellow in the Center for Health Policy Studies, of the Institute for Family, Community, and Opportunity..