You are here

Illegal Change to Obamacare Is Designed to Scapegoat Insurers, Not Restore Canceled Insurance Policies

If aliens from outer space read today's newspapers, they would assume that America is a dictatorship, not a republic, and that President Obama has the authority to pass and repeal laws all by himself, though executive decree.

Writing about President Obama's decision to allow insurers to temporarily reissue certain policies cancelled due to the Affordable Care Act, The Washington Post stated, "President Obama relented to pressure from the public and his own party Thursday and changed one of the bedrock requirements of the new health-care law to fulfill his promise to allow people to keep their insurance plans if they want." But as every schoolchild used to be taught, Presidents cannot "change" the "bedrock requirements" of a federal law, only Congress can, since only it has the power to pass and repeal legislation. For a bill to become law, or for a law to be repealed, legislation must first pass both Houses of Congress before the President can act on it.

The president's change in the law is plainly illegal, as Eugene Kontorovich, who teaches constitutional law at Northwestern University, has noted. As Kontorovich points out, President Obama's change does not simply suspend requirements imposed on insurers, but also imposes "new obligations" on insurers that seek to take advantage of the waiver, something that is quintessentially legislative, rather than executive, in character. Thus, even if Obama had the statutory authority to suspend ACA requirements to allow insurers to continue offering plans that do not meet the new law's requirements (no statutory authority was cited in yesterday's letter announcing the change), he lacks the ability to condition such waivers on criteria imposed by executive fiat.

While the change is illegal, it doesn't really do much for people's whose insurance policies have been cancelled, since the conditions attached to it, and other features of the change, are so onerous that most insurers won't find it feasible to reissue cancelled policies. Basically, it is designed to give the president an excuse to scapegoat insurers.

As Professor Kontorovich notes,

President Obama in his speech on “fixing” the Affordable Care Act today did not specify what statutory authority, if any, he thinks authorizes him to make such dictats. Given the gargantuan length of the ObamaCare statute, he might still be looking. . . the Chief Executive has some room to decide how strongly to enforce a law, and the timing of enforcement. But here, Obama is apparently suspending the enforcement of a law for a year – simply to head off actual legislation not to his liking. Congress is working on legislation quite similar to the president’s fix, but with differences he considers objectionable. This further demonstrates the primarily legislative nature of the fix. Indeed, the fix goes far beyond “non-enforcement” because it requires insurers to take certain new action to enjoy the delay. This is thus not simply a delay, but a new law. The “fix” amounts to new legislation – but enacted without Congress. The President has no constitutional authority to rewrite statutes, especially in ways that impose new obligations on people, and that is what the fix seems to entail. And of course, this is not the first such extra-statutory suspension of key ObamaCare provisions.

Law professor Jonathan H. Adler also observes that Obama's change was done in a way that is illegal. Nicholas Bagley reviews relevant law and finds that “the administrative fix may be vulnerable to even sharper claims of illegality than the delay of the employer mandate.”

Although the change is illegal, it won't affect a substantial percentage of cancelled insurance policies. Cancelled policies will mostly stay cancelled. At The Washington Post's Wonkblog, Robert Laszewksi explains why:

This means that the insurance companies have 32 days to reprogram their computer systems for policies, rates, and eligibility, send notices to the policyholders via US Mail, send a very complex letter that describes just what the differences are between specific policies and Obamacare compliant plans, ask the consumer for their decision — and give them a reasonable time to make that decision — and then enter those decisions back into their systems without creating massive billing, claim payment, and provider eligibility list mistakes.

The Washington Post's Sarah Kliff, who has sometimes served as a cheerleader for Obamacare in the past, considers insurers’ dilemma as a result of the change:

[I]nsurers are in a bit of a tricky spot. It will look pretty bad if they don’t allow people to keep enrolling in their 2013 plans; as the president said, its a whole lot harder to blame the cancellations on Obamacare. But if they do allow that to go forward, it could screw up the risk pool in the new insurance marketplaces by letting the younger and healthy people (who would likely stick with their skimpier plans) stay out of the exchange. They’d essentially be siphoning off the exact same customers they were hoping to woo into the exchanges.

Professor Adler suggests that the change may be a legal bait-and-switch that fools insurers into reissuing policies with limits that later can't be enforced, and are deemed illegal, based on language in the Affordable Care Act:

[T]he Administration is not changing the law. It’s just announcing it will not enforce federal law (while simultaneously threatening to veto legislation that would authorize the step the President has decided to take).

Does this make the renewal of non-compliant policies legal? No. The legal requirement remains on the books so the relevant health insurance plans remain illegal under federal law. The President’s decision does not change relevant state laws either. So insurers will still need to obtain approval from state insurance commissioners. This typically requires submitting rates and plan specifications for approval. This can take some time, and is disruptive because most insurance companies have already set their offerings for the next year. It’s no wonder that some insurance commissioners have already indicated they have no plans to approve non-compliant plans.

Yet even if state commissioners approve the plans, they will still be illegal under federal law. Given this fact, why would any insurance company agree to renew such a plan? It’s nice that regulators may forbear enforcing the relevant regulatory requirements, but this is not the only source of potential legal jeopardy. So, for instance, what happens when there’s a legal dispute under one of these policies? Say, for instance, an insurance company denies payment for something that is not covered under the policy but that would have been covered under the PPACA and the insured sues? Would an insurance company really want to have to defend this decision in court? After all, this would place the insurance company in the position of seeking judicial enforcement of an illegal insurance policy. If there’s an answer to this, I haven’t seen it.

Obama may pay a price for scapegoating insurers. As Reason magazine's Peter Suderman points out, the administration needs the cooperation of insurance companies if the law is going to succeed:

Obama is creating a long-term policy problem in order to solve a short-term political problem. Even if this temporarily reduces some of today’s political pressure, those long-term policy problems will rebound to create additional political problems as time goes by. Premiums will rise, and if consumer demand turns out to be lower than expected as a result, plans may withdraw from the market. At the same time, insurers, who have been targeted by the administration for blame and had their assurances about the state of the law (and thus their business plan) upended, will be less likely to cooperate with the administration. They are already frustrated with the administration, and this will hasten the break between them. The opposition of insurers will add a new layer of opposition that the administration must contend with in order to make the law—which is built around the goal of making insurance coverage accessible—work.

The Heritage Foundation says the president's action is an illegal "PR" move:

President Obama has told Obamacare’s critics that the law is “settled” and “here to stay.” But today he is saying he’ll violate the law to put a Band-Aid on it for another year. That’s in addition to the one-year delay in the employer mandate and numerous other “fixes” and delays.

The President is announcing his “fix” to the problem of millions of canceled policies: According to press reports, the President’s “plan would allow people to keep their plans into 2014,” by allowing the sale of insurance plans that don’t meet the law’s new requirements.

There’s one problem—the President’s promise that his new “plan” can allow people to keep their plans is just as flawed and false as his original “like your plan/keep it” pledge. The law itself is clear: Obamacare’s new benefit mandates—the requirement to cover all individuals with pre-existing conditions, the new “essential benefits,” and mandates increasing the percentage of health costs insurance plans must cover—all take effect on January 1, 2014.

The National Review's Rich Lowry also questions the legality of the administrative "fix":

In attempting to stem the panic of congressional Democrats, Obama has thrown the insurers who had bought into Obamacare under the bus, a move that itself could harm the law’s long term prospects. He has once again acted unilaterally and (presumably) lawlessly rather than going to Congress, but he has undercut his own spin that Obamacare is the immutable “law of the land” and in his press conference, admitted that many of the law’s failures are on him rather than the result of Republican sabotage. We’ll see now whether the president has at least stabilized his position on Capitol Hill. Regardless, a bad day for him and the law.

Bloomberg News' Ramesh Ponnuru expects the change to only make the law worse:

In recent weeks, proponents of Obamacare have been arguing that we shouldn’t make too much of its early troubles, because President George W. Bush’s prescription-drug program saw early fumbles, too. (The people behind Obamacare may not be good at building websites, but they’re great at manufacturing excuses.) It’s perverse, of course, to suggest that the difficulties of a smaller, far less complex program are a good omen for Obamacare. But the bigger problem is that Obamacare is vulnerable to adverse selection in a way that Bush’s program was not.

Slate's David Weigel, no fan of the GOP, agrees with it that the President's unilateral change "won’t restore all the canceled plans. Republicans (and anyone who’s talked to any insurer, ever) know this is not the case. After this week, Republicans will be able to react to any new stories about canceled plans by pointing out that, hey, they wanted to fix this, but the president arrogantly refused them and went with his own plan."

If unilateral administrative "fixes" were legal, there are lots of other things about Obamacare that are even worse and cry out to be fixed. The Affordable Care Act contains massive marriage penalties that discriminate against married people, and huge work disincentives for some older workers. It has slashed hiring, cut economic growth, and induced employers to replace full-time workers with part-time employees, driving even unions that once backed it to seek its repeal or replacement. And its medical device tax has caused layoffs by medical manufacturers.