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Policy: Law

When Obamacare loses in court, insurance companies lose, too

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Opinion,Timothy P. Carney,Columnists,Obamacare,Health Care,Healthcare.gov,Law,Magazine,Insurance Industry

When the administration lost an Obamacare case in federal court Tuesday, the insurance companies lost as well.

Obama's Internal Revenue Service, the D.C. Circuit Court of Appeals ruled, had been illegally transferring money from taxpayers to insurers by pretending the Affordable Care Act said something it didn't say.

The Affordable Care Act forces people who don’t want to buy health insurance to buy it anyway — this is the individual mandate. It also helps people afford insurance through tax credits. The tax credits, under the law, are available only for health plans purchased through a health-insurance exchange “established by a State.”

Fifteen states established exchanges. Residents of other states could purchase their insurance through the federal exchange — the infamous healthcare.gov.

The IRS nonetheless ruled that customers of healthcare.gov could get tax credits. They essentially interpreted “exchange established by a State” to include exchanges not established by a state.

A three-judge panel on the U.S. District Court for the District of Columbia found Tuesday in Halbig v. Burwell that the IRS couldn’t change the meaning of the law, and thus the health plans sold on healthcare.gov are not eligible for subsidies.

This ruling — while commonsensical — might be disruptive for middle-class recipients of tax credits on the federal exchange. Obamacare forces many of them to buy insurance, and it pushes premiums upwards by requiring more coverage. The IRS's illegal subsidies offset some of these costs.

But it’s misleading to describe the tax credits as simply subsidies to the insurance customers. They’re really subsidies to the insurance companies.

Obamacare tax credits amount to a check from the Treasury to insurance companies. “The ACA's tax credits are given directly to the insurance companies,” author and healthcare expert Josh Archambault wrote in an article at Forbes. The IRS's website helpfully explains that in many cases, the tax credit is “paid in advance to a taxpayer's insurance company to help cover the cost of premiums.”

So the taxpayer's tax bill doesn't really go down. He just gets to buy insurance below the sticker price.

When government subsidizes the purchase of something, some of the benefit goes to the purchaser, but much of the benefit goes to the seller. Think of how federal student aid has driven college tuitions through the roof, and ethanol subsidies pushed ethanol prices up. (I’d love a federal tax credit for anyone who buys my books.)

Subsidizing something increases demand for it, thus driving up price. Subsidizing something also reduces buyers’ price-sensitivity — and a price-insensitive buyer is gold for a business. Over time, Obamacare’s subsidies would boost insurance premiums.

Subsidies were one of the many goodies Obamacare provided insurers. Obamacare also required individuals to buy insurance, compelled many business owners to insure employees, expanded Medicaid (which is often administered by private insurers) and supplied a bailout to struggling insurers in the form of “risk corridors.”

The Halbig ruling is a triple threat to the insurers’ Obamacare favors. By stripping away tax credits, it reduces insurance companies transfers’ from the federal government. Halbig also reduces the impact of the law’s employer mandate and individual mandate.

Writing about the IRS’s improper extension of tax credits to the federal exchange, the district court stated: “By making credits more widely available, the IRS Rule gives the individual and employer mandates — key provisions of the ACA — broader effect than they would have if credits were limited to state-established Exchanges.”

Without tax credits on healthcare.gov, more people are covered by the individual mandate’s “hardship exemption.” Also, the employer mandate was tied up with tax credits, and so many insurers are now freed from that requirement.

Obamacare defenders see only pain in this ruling, but the insurers’ pain in some cases translates into others’ gain.

The employer mandate crimped many small businesses. The mandate probably brought about layoffs, relegated some employees to part-time status and discouraged the hiring of more workers.

Halbig will be appealed to the full District Court, which could stay Tuesday's decision until it rules. If it ultimately overrides the three-judge panel, the case could end up in the U.S. Supreme Court.

But if Hailbig is upheld on appeal, the effects would be sweeping: Small businesses would be relieved of some of the law’s burdens. Premiums would increase for people who were not eligible for subsidies. And taxpayers would no longer be forced to provide as many subsidies to insurance companies.

Obama and the Democrats pushed Obamacare by attacking insurance companies and painting Obamacare opponents as shills for the insurers. This was dishonest populist posturing. The insurance companies were partners in Obamacare — uneasy partners, to be sure.

Now, as Obamacare's cracks split open into gaping holes, the insurers may be regretting their partnership.

Timothy P. Carney, The Washington Examiner's senior political columnist, can be contacted at tcarney@washingtonexaminer.com. His column appears Sunday and Wednesday on washingtonexaminer.com.
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