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Policy Analysis What the PPACA SCOTUS Ruling Means for Wyoming


~~By Regina Meena, MPA~~
Point 1: By a vote of 5-4, the PPACA was upheld not as a command for Americans to buy insurance, but as a tax if they choose not to.
 The individual mandate requiring the purchase of health insurance was found unconstitutional under the Commerce Clause and Necessary and Proper Clause. The federal government cannot force any individual to purchase health insurance. States do have that authority. Massachusetts required purchase of health insurance under their program which became the model for the PPACA.
 The federal government, under Congress’s Taxing Clause, can tax any individual who chooses not to purchase insurance. This is referred to as the “no insurance tax.”
 The SCOTUS ruling upheld the PPACA’s limitations on the “no insurance tax.” They are:
o The tax is “not so high that there is really no choice but to buy health insurance.” (NFIB v. Sebelius, Syllabus, page 4). There is a cap on the tax of $695 per adult (children are one half this amount) or 2.5 percent of income, whichever is greater. For families, the maximum tax is three times the individual flat-dollar tax, or 2.5 percent of income, whichever is greater.
o The tax is not punishable as unlawful conduct. There are no civil or criminal penalties for refusing to pay it. The IRS cannot seize bank accounts or dock wages to collect it. No interest accumulates for unpaid penalties.
o There are no negative consequences stated in the PPACA to not buying health insurance beyond requiring a payment to the IRS (NFIB v. Sebelius, Syllabus, page 4). The IRS may withhold the proper amount from an individual tax refund or write stern letters. IRS is counting on people to pay the tax because they are intimidated by the letters and IRS reputation.
 The ruling clarified that under the PPACA, all Americans have a choice between purchasing health insurance and paying a tax in lieu of health insurance purchase.
Wyoming Liberty Group is a non-profit, non-partisan public policy research institute.
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Point 2: Without a requirement forcing Americans to purchase health insurance (individual mandate), the private health insurance industry cannot create affordable health insurance plans.
 Because of the cap on the “no insurance tax”, affordable health insurance should be defined as “must compete with the very low, IRS tax option.”
 The ruling upheld PPACA insurance reform provisions requiring all health plans to:
o Limit profit margins (Medical Loss Ratio) as insurance companies must spend between 80% and 85% on medical care, as opposed to administrative costs or profits.
o Cover emergency services.
o Require states balance insurance premiums between plans in the exchange with those outside (large, self-insured employers, etc.).
o Ensure Guarantee Issue/Renewal of plans. Insurers must offer and renew coverage, without regard to health status, use of services, or pre-existing conditions. This requirement ensures that no one will be denied coverage for any reason.
o Limit waiting periods under all group health plans to 90 days. People can change plans without repercussions.
o Develop the same basic package of services offered in every state, by every insurer, known as the “Essential benefits Package.”
o Enact Community Rating for setting premium rates for health insurance plans under which all policy holders are charged the same premium for the same coverage.
o Prohibit Annual and Lifetime dollar limits on essential benefits.
But that’s not all…
Point 3: New taxes on health insurance plans push costs even higher on all employer plans, individual and small group plans, subsidized plans offered through the Exchange, and public health programs.
 A new health insurance tax (separate and distinct from the “no insurance tax”) will be allocated to each insurer based on its applicable net premiums during the year. This tax will be passed onto the public as an increase in their premiums on all plans offered in every state.
 It is estimated that premiums in Wyoming will jump 30-40%.
 Based on a family of four, the estimated dollar amount of price change associated with the new tax on premiums is $350 to $400, by 2016 reaching $5,000 per year by 2023. This is a nationwide estimate.
 Medicaid coverage costs are expected to increase by about $1,530 per enrollee by 2023. Medicare Advantage and Part D coverage costs are expected to increase by $3,590 and $161 respectively by 2023.
Wyoming Liberty Group is a non-profit, non-partisan public policy research institute.
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 The public will have to absorb the annual deductible costs in addition to the increased premiums, plus the new premium tax and compare it to the IRS “no insurance tax” amount. It is predicted that more people will forego coverage. Doctors and health care providers should develop direct payment policies for those who continue to choose to pay the very low “no insurance tax” over sky high premiums and deductibles and opt to pay cash for services. This is one reason why Wyoming’s Constitutional Amendment A must pass in November 2012.
 The PPACA does not require employers to offer health insurance coverage to their employees. They can pay a new tax of $2000 per full-time employee (FTE), minus the first 30 FTE’s.
 Additionally, employers with 50 or more FTE’s must pay a non-deductible tax of $3,000 on any FTE that qualifies for and receives federal subsidies for insurance through the Exchange.
 Also, all employers who offer coverage and make a contribution toward that coverage, must also provide “free choice vouchers” (amount equal to contribution) to employees who meet all of the following criteria; Household income below 400% FPL, employee contribution for coverage under the plan is between 8 and 9.8% of household income, and employee and family are not enrolled in the employer plan.
 Here are the scenarios Wyoming employers will face:
o Large employer with 51 FTE’s, does not offer coverage and pays a tax of $2,000 annually x total number of FTE’s –(minus) first 30 FTE’s = $2,000 x 21= $42,000. This same employer pays zero taxes if no FTE’s are eligible for subsidies.
o Large employer with 130 FTE’s, offers coverage with 75 employees eligible for subsidies and does not contribute toward coverage, thus no free choice vouchers, pays a tax of $2000 x 100 FTE’s = $200,000 or $3,000 x (75 eligible for subsidies) = $225,000, whichever is less.
o Large employer with 155 FTE’s offers coverage and contributes $200 per month towards employee premiums has 100 FTE’s enrolled in plan, 25 FTE’s subsidy eligible and 30 eligible for free choice waivers, pays a tax of $200/month premium x 12 x 100 = $240,000, plus $3,000/year x 25 subsidies = $75,000, plus $200/month x 12 vouchers x 30 = $72,000 for a grand total of $387,000.
 Employers will have to absorb the annual premium increases in plans they offer and that are offered through the Exchange, plus the new tax for any employee who qualifies for subsidized insurance offered through the Exchange, plus the cost of the “free choice voucher.”
 Here’s the catch. Neither the insurance company nor employer will know the total household income for the current year. All taxes are calculated and paid for in arrears compounded by the fact that all premiums will change annually. This leaves incredible volatility in business calculations. Employers have no way of knowing if their plan is affordable because they won’t know their employee’s household incomes. Employers will not be able to take action to reduce or
Wyoming Liberty Group is a non-profit, non-partisan public policy research institute.
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eliminate risk of tax assessed. It is impossible because the only factor they can control is assuring the plan benefits offer the minimum coverage. Same with insurers. They will not be able to determine if their plans require an employee contribution between 8 and 9.8 percent of household income, a definition of “affordable.” For employers, it will be easier to drop coverage and pay the tax.
 Combine the limitations on health insurance plan designs with the new taxes on employers and plans, and couple those with the federal law (EMTALA) that gives the public their right to emergency care regardless of the ability to pay, and we have a race to the bottom as people drop their plans, pay the tax (or not), and force employers to drop coverage or pick up a bigger share of the cost to cover “who’s left in the risk pool.”
 In order to save the private health insurance industry, each state would be forced to consider mandating the purchase of health insurance like Massachusetts did. This is another reason Wyoming must pass “Constitutional Amendment A” in November 2012.
Point 4: Without affordable (competes with the very low “no insurance tax”) health insurance, neither a federal nor state Exchange can function.
 By a vote of 7-2, the Medicaid Expansion provision of the PPACA was found unconstitutional because depriving a state of all of its Medicaid funding for refusing to agree to the new expansion would exceed Congress’s power under the Spending Clause.
 The Exchanges, both federal and state, are part of this provision.
 But, because this meant that even states that want to participate in the Medicaid Expansion would not have the option, the remedy was to hold provision 1396(c) unconstitutional.
 42 U.S.C. 1396(c) says “A state that opts out of the Affordable Care Act’s expansion in health care coverage thus stands to lose not merely “a relatively small percentage” of its existing Medicaid funding, but all of it.”
 The Medicaid Expansion would have required states to automatically enroll all citizens with household incomes below 133% of the Federal Poverty Level (FPL) into Medicaid. This would have forever increased Wyoming’s Maintenance of Effort (MOE) which is the requirement for Wyoming to maintain our level of expenditures for Medicaid enrollees, year after year. We can never spend less, only more.
 This ruling was a huge win for Wyoming. The result of this ruling is that states can choose whether or not to participate in the expansion. They must comply with the conditions attached to the new expansion funds if they take that new money. States can also choose to continue to participate only in the unexpanded version of the program if they want.
 HHS and CMS can no longer force any state to set up an Exchange. Instead, the Medicaid expansion and all its provisions must now function like all other existing Medicaid programs. This means federal funding must be made available at the time a state decides to create, and fund, another Medicaid program.
Wyoming Liberty Group is a non-profit, non-partisan public policy research institute.
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 Exchanges are government agencies whose operating costs are funded by the state and are governed by an appointed Board of Directors. They have many functions. Establishing a web portal where individuals are supposed to shop for “affordable” plans is one function. Determining income eligibility for enrollment in Medicaid or for subsidized plans is another key function.
 Exchanges contract with Navigators (non-profit organizations) to market the exact same plans, with all the new taxes, that all insurers must design and are sold through the Exchange. Private agents and brokers will also market the exact same plans, with all the new taxes, that all insurers must design and are sold through the Exchange.
 Exchanges cannot create and design “affordable” health insurance plans. Insurers must do that. Exchanges are to function as the “marketplace” where the public can purchase such plans.
 It is vital that no one overpromise to the public what this law can deliver and what results they can expect.
 Our State Legislators were exactly right not to set up any Exchange until the SCOTUS ruling. HHS can offer financial incentives to states for expanding Medicaid and operating an Exchange that would pay for 90% of the costs until 2019. After that, states will pick up all costs according to their FMAP. Wyoming’s FMAP is currently 50%. Wyoming would have been locked into those MOE requirements with no certainty that health status improves, access to care increases, the cost of health care lowers and especially, that affordable health insurance is created.
Where does Wyoming go from here?
Simply put, we continue with our reform efforts. All Wyoming citizens deserve affordable health care and affordable health insurance regardless of their income levels, health status or age group. Our current health care system is unjust in its delivery of services, and it is time to fix it.
1. We must protect individual rights by passing Constitutional Amendment A in November of 2012.
2. We must pass “Georgia-style” legislation that creates large, nationwide risk pools by allowing Wyoming citizens to purchase affordable plans licensed and offered for sale in other states. Large risk pools lower costs by spreading risk between 100 million people instead of 1,000 as insurance companies compete within a stable risk pool and lower the cost of premiums. This is how auto, property and life insurances operate. The McCarran-Ferguson Act reserved to the states the exclusive right to regulate the “Business of Insurance.” Only states can license, regulate, impose a fee upon and tax insurance. It is fair to say that the SCOTUS ruling effectively changed the PPACA into a tax code. This means, Wyoming must treat health insurance like all the other insurances and place it within the expertise of the Corporations, Elections and Political Subdivisions Committee where insurance premium taxes have jurisdiction. Health Insurance is not a public health program. Additionally, since the SCOTUS ruling commanded every state offer the exact
Wyoming Liberty Group is a non-profit, non-partisan public policy research institute.
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same basic health plan, it is silly for states to continue to wall off their risk pools, continue licensing and regulation requirements that prevent citizens from purchasing affordable health insurance plans offered in other states and continue the health insurance industry anti-trust protections that prevent competition between insurance companies. There is no other way to create affordable (competes with the very low “no insurance tax”) health insurance except to return it to the free-market where all the other insurances function. They have remained truly affordable. In fact, citizens currently on Medicaid and Medicare can use their own money to purchase auto insurance. “Georgia-style” legislation will be introduced, again, during the 2013 session.
3. We must not expand Medicaid and reform our current Medicaid program to allow citizens with incomes between 100% and 400% FPL to purchase insurance by utilizing the same “free choice vouchers” the PPACA created and made available to employers. This means the proposed Medicaid expansion population at 100% up to 133% FPL could purchase private insurance plans, thereby eliminating any need to expand Medicaid. We do not need an Exchange to accomplish subsidized premium assistance. Affordable premiums cost less than the current and predicted per enrollee Medicaid cost Wyoming now funds. Wyoming would need to pursue a block grant through HHS and CMS in order to do so.

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