Wednesday, March 26, 2014

It's Only a Matter of Time Before Employee Groups or Insurers Sue to Enforce PPACA as Written - Not as "Butchered"

An argument that Congressman Tom McClintock first made to me in November and that I think has gained even greater credibility over the last few months is that the Administrative magic-wand-waiving and unilateral, extra-constitutional delays to PPACA are irrelevant.  The congressman's point is simple enough: regulations and executive proclamations are inferior to statutory language.  And since PPACA was passed by congress and signed by the President, any purported changes made by IRS, HHS, DOL, or the President himself are extraneous and without actual authority.  This is true even when His Most Excellent Majesty commands that your health plan be de-un-grandfathered, as Mark Steyn so eloquently put it.  

Congressman McClintock is absolutely correct.  But I suffered a bout of cranial constipation as I struggled with the practical limitations of this rationale.  Since the executive branch has decided not to enforce aspects of the law as written, the only remaining way to compel compliance would be in a court of law.  And before a suit can proceed, we would need a plaintiff (or group of plaintiffs) with actual and tangible harm.  With every passing delay, amendment, and change that likelihood increases.  It is still not a slam-dunk, but I think there will be a real class of plaintiffs out there before too long.  

Section 105(h) of the Internal Revenue Code has been in effect for decades with respect to self-funded insurance plans.  It was passed to ensure that employers do not discriminate in favor of their highly compensated employees in the provision of health benefits.  PPACA looped 105(h) in and made it applicable to fully-insured plans once ACA Grandfathered Status was lost.  

This is going to create a huge mess for many health plans as many currently do discriminate in favor of their highly compensated employees.  Before March 23, 2010 we called this a "compensation-strategy."  Now it has been demonized as an unethical assault on all that is good and decent.  Because of the havoc 105(h) will cause in insured plans, the federal government has decided not to enforce it until it can write regulations presumably neutering the dictates of 105(h) much like it has done with the affordability tests in PPACA.  (On affordability, administrators wrote regulations allowing an employer to charge up to 100 percent of the premium for an employee's dependents, angering some of the most ardent supporters of the President's law). 

One area in which I can imagine banding together a group of sympathetic plaintiffs would be in response to an employer's violation of 105(h) as the statute is written.  Imagine a group of employees who have to pay 30 percent or more of the cost of their health plans while the highly compensated, executive-class pays nothing or some nominal percentage of premium.  Such an arrangement was common prior to PPACA's passage and is still quite prevalent.  PPACA's stated penalty for such a violation is $100 per person per day for all persons harmed by the employer's transgression.  In this case that would most likely be all employees that are not in the top 25% of wage earners at an employer.  If you had a 1,000 employee company that would be a fine of $75,000 per day.  

And then I read the below and began to ponder various scenarios that may allow for a group of employees or even insurers to sue to enforce the employer mandate as it is written: not as federal regulators have butchered it.  In any event, I think we are in for some rather interesting lawsuits in the upcoming months as our legal system tries to sort through the practical mess created by an executive branch attempting to legislate as it goes along. 

This is from law professor, Jonathan Alder writing at the WaPo's Volokh Conspiracy:
... Congress expressly provided that the mandate was to take effect this year. Further, if the mandate penalty is a tax — as the administration currently maintains in various PPACA-related cases pending in federal court — then the employer mandate delay constitutes more than deferring payments or declining to seek penalties. Rather it constitutes a unilateral decision by the executive branch to waive an accrued tax liability. 
The legal justification for the employer mandate delay offered by the Treasury Department has been exceedingly weak. Perhaps this is because the Treasury Department never considered whether it had legal authority to delay the employer mandate until after it made the decision to delay it. The Examiner reports:
Treasury Assistant Secretary for Tax Policy Mark Mazur, who announced the employer mandate delay in a blog post, told the House Oversight and Government Reform Committee that he didn’t remember anyone considering the legal basis for the delay. 
“Did anyone in the Department of the Treasury inquire into the legal authority for the delays?” Mazur was asked.
“I don’t recall anything along those lines, no,” he replied. He gave a similar answer when asked about the IRS and the Executive Office of the President.
This has led some to speculate that the order for the delay came from the White House, where political considerations would have trumped legal constraints. This is eminently plausible given some of the White House’s other announcements seeking to alter PPACA implementation in unauthorized ways
This would hardly be the only instance in which the Treasury Department implemented the PPACA without adequately considering the relevant legal constraints. A recent report issued by the House Ways & Means and Oversight and Government Reform Committees suggests there was little consideration of the Administration’s legal authority to authorize tax credits in federal exchanges before the decision was made and the rule was drafted. 
The PPACA was bad enough as drafted, but what we’re getting is something else entirely. 
Just this morning, I learned that another inherent conflict in PPACA might settle itself rather quickly.  The statute itself requires no newly sold small group (sub-50 employees in California) or individual plan to have a deductible of more than $2,000.  The problem is that many groups do and driving deductibles below $2,000 will price some employer plans out of reach.  Exchanges like we have in California are openly selling plans to individuals with deductibles well over $2,000.

What is going on?  Federal regulators have issued guidance that they will grant significant leeway to the states in crafting and approving plans so long as those plans meet the 60% actuarial value threshold.  Incidentally, according to government calculators, you can have a deductible in excess of $6,000 and meet that standard if other benefits are crafted accordingly.  How much do you think employees are going to like $6,000 deductibles?  Prepare your riot gear for those open enrollment meetings.

So once again, we have a situation where the statute and the regulators are diametrically opposed.  When employers ask me what to do, I explain the situation and the risks.  Do you comply with the statute as written or with the law as butchered?  (To be fair most of the butchering to which I refer has been from regulators understanding the horrific unworkability of massive chunks of PPACA and their effort to try and make it somewhat palatable.)  But it is a juicy steak on a garbage can lid.  No amount of grilling and seasoning will make it more appealing.

During a hilarious episode in season 8 of The Cosby Show,
Bill Cosby introduced us to the "steak on a garbage can lid" image.  
Alas, the deductible problem may go away quickly.  Just today we learned from our contacts in D.C. that language repealing PPACA’s deductible cap for small employers is being included in the Medicare provider payment fix patch legislation that has been negotiated by both parties and will be voted on by Congress over the course of the next week or so. [Update here.]

Nevertheless, I expect to see more creative law suits in this vein, much like the Halbig v. Sebelius case which was heard yesterday in the D.C. Appellate Circuit.  For more on that case hit our Oklahoma vs. Obamacare label in the nav panel to the right.