The Obama administration is boasting that 2.5 million Americans have selected health insurance plans for 2015 through the Exchanges it operates in 36 states under the Patient Protection and Affordable Care Act, and that they are well on their way to enrolling 9.1 million Americans in Exchange coverage next year. But there’s a problem. The administration is not warning ObamaCare enrollees about significant risks associated with their coverage. By mid‐​2015, 5 million Health​Care​.gov enrollees could see their tax liabilities increase by thousands of dollars. Their premiums could increase by 300 percent or more. Their health plans could be cancelled without any replacement plans available. Yesterday, the U.S. Senate leadership — incoming Majority Leader Mitch McConnell (R-KY), Majority Whip John Cornyn (R-TX), Conference Chairman John Thune (R-SD), Policy Committee Chairman John Barrasso (R-WY), and Conference Vice Chairman Roy Blunt (R-MO) — wrote Treasury Secretary Jacob J. Lew and Health and Human Services Secretary Sylvia M. Burwell to demand the administration inform consumers about those risks.


First, some background.

• The PPACA directs states to establish health‐​insurance Exchanges and requires the federal government to establish Exchanges in states that fail to do so.
• The statute authorizes subsidies (nominally, “tax credits”) to certain taxpayers who purchase Exchange coverage. Those subsidies transfer much of the cost of ObamaCare’s many regulations and mandates from the premium payer to the taxpayer. For the average recipient, Exchange subsidies cover 76 percent of their premium.
• But there’s a catch. The law only authorizes those subsidies “through an Exchange established by the State.” The PPACA nowhere authorizes subsidies through federally established Exchanges. This makes the law’s Exchanges operate like its Medicaid expansion: if states cooperate with implementation, their residents get subsidies; if not, their residents get no subsidies.
• Confounding expectations, 36 states refused or otherwise failed to establish Exchanges. This should have meant that Exchange subsidies would not be available in two‐​thirds of the country, and that many more Americans would face the full cost of the PPACA’s very expensive coverage.
• Yet the Obama administration unilaterally decided to offer Exchange subsidies through federal Exchanges despite the lack of any statutory authorization. Because those (illegal) subsidies trigger (illegal) penalties against both individuals and employers under the PPACA’s mandates, the administration soon found itself in court.
• Two federal courts have found the subsidies the administration is issuing to 5 million enrollees through Health​Care​.gov are illegal. The Supreme Court has agreed to resolve the issue. It has granted certiorari in King v. Burwell. Oral arguments will likely occur in February or March, with a ruling due by June.
• If the Supreme Court agrees with those lower courts that the subsidies the administration is issuing through Health​Care​.gov are illegal, the repercussions for enrollees could be significant. Their subsidies would disappear. The PPACA would require them to repay the IRS whatever subsidies they already received in 2015 and 2014 — up to $5,000 per household. Their insurance payments would quadruple, on average. Households near the poverty level would see even larger increases. Their plans could be cancelled, and they may not be able to find replacement coverage.
• The Obama administration knows it is exposing Health​Care​.gov enrollees to these risks. But it is not telling them.

Cue the senators:

It is imperative that people understand this risk as they contemplate signing up for coverage.


On December 9, 2014, Centers for Medicare and Medicaid Services (CMS) Administrator Marilyn Tavenner testified that the administration does not plan to inform federal exchange enrollees that they could face much higher tax bills and higher premiums next year should the Court find that the IRS was improperly providing the tax credits. Without this information, many families could turn down more‐​secure coverage options (e.g., through a different employer) in favor of less‐​secure Obamacare coverage. We urge you to reconsider this position and to ensure that these Americans have all available information as they make decisions about health insurance coverage next year.

At the same time, the Obama administration is taking care of insurance companies:

Furthermore, while the Administration has decided not to inform people about the potential ramifications of King, the administration has protected insurers, at their request, from a ruling that strikes down the IRS rule. According to an October report, at the request of insurers, the contracts between CMS and insurers “include a new clause assuring issuers that they may pull out of the contracts, subject to state laws, should federal subsidies cease to flow. … The language in the clause says that CMS acknowledges that the issuer has developed its products for the FFM ‘based on the assumption that (advanced payment tax credits) and (cost‐​sharing reduction payments) will be available to qualifying (e)nrollees.’” In the House hearing, Administrator Tavenner testified that CMS negotiated these contracts with insurers over the summer and that every contract has the same clause. It is troubling that the administration decided to protect insurers from a King ruling that restricts the law’s tax credits to state exchanges while at the same time failed to inform people enrolled or considering enrolling in federal exchanges of the potential consequences of such a decision.

The senators end by demanding the administration be honest and transparent with the public and particularly Health​Care​.gov enrollees:

Given the enormity of the financial stakes involved, we request that you use your department’s fiscal year (FY) 2016 budget submission to inform Congress of how the Administration plans to respond to a possible ruling in King that recognizes that the IRS’s rule is at odds with the law. We also urge you to inform all current federal exchange enrollees and all visitors to Health​Care​.gov about the King suit and how a ruling against the administration could affect them. Finally, please provide information on any actions that the Administration is preparing to ensure that people inappropriately subjected to Obamacare’s individual and employer mandates and associated tax penalties are not punished further.

Recall that President Obama promised his health care law would rein in the worst insurance‐​industry abuses. Like when insurance companies sell you a plan without clearly disclosing all relevant risks. Or when they enroll you at one rate and then later jack up your premiums. Or when they out of nowhere cancel your coverage.


(Cross‐​posted at Darwin’s Fool.)


Update: Edited to correct/​reduce the total increase in tax liability federal‐​Exchange enrollees could face.