States’ Latest ACA Lawsuit Threatens to Reignite “Repeal-Without-Replace” – With Real Consequences for Stakeholders

Earlier today, California, along with 15 state attorneys general, filed a motion to intervene in Texas et al. v. United States et al. The original lawsuit, initiated by governors and attorneys general from 20 other states, was filed in the U.S. District Court in the Northern District of Texas, a traditionally more conservative district, alleging that the Affordable Care Act (ACA) is no longer constitutional. Adding to the series of ACA-related litigation, this latest complaint hinges on Congress’s recent action to eliminate the tax penalty associated with the individual mandate.

In 2012, in National Federation of Independent Business v. Sebelius, the Supreme Court held that the individual mandate penalty was constitutional, because Congress has the power to tax and the “penalty” is a tax at heart based on the way it is structured and operates (e.g., the amount due is less than the price of insurance, payment is collected solely by the IRS, etc.). The majority reasoned that the ACA’s individual mandate penalty served the “essential feature of any tax,” in that it raised at least some revenue.

In December 2017, President Trump signed the Tax Cuts and Jobs Act into law, which reduces the individual mandate penalty (tax) from $695 per adult (or 2.5 percent of household income) to $0 beginning in 2019, while still leaving intact the mandate to purchase coverage. The states’ complaint alleges that since the penalty has been zeroed out, it no longer raises revenue and, therefore, cannot be enforced as a tax. Their suit asserts that this makes the mandate to buy insurance unconstitutional, and since it is foundational to the law, they argue, by extension, the rest of the ACA “must also fall.”

If taken at face value, their argument that the entire law should be struck down would have the same policy effect of repealing the ACA without implementing a replacement. This would involve uprooting a complex law that has been in place for over eight years, touches almost every facet of our health care system, and includes many provisions with widespread bipartisan support (e.g., allowing young adults to stay on their parents’ plans until age 26, closing the Medicare drug benefit “donut hole,” etc.). Last summer, Congress explicitly rejected the “repeal-without-replace” approach, with the majority of members finding that repeal only would result in significant negative consequences. Here’s a look back at some of those consequences, which this lawsuit threatens to reignite.

Millions Would Lose Coverage & Individual Market Premiums Would Double

After evaluating Congress’s Repeal Reconciliation Act of 2017, the Congressional Budget Office (CBO) and Joint Committee on Taxation estimated that repealing the ACA without implementing a replacement would result in 32 million individuals losing coverage by 2026. Their report found that 17 million would lose coverage in the first year and 27 million would have lost coverage after three years. Those maintaining coverage in the individual market would then see their premiums double. CBO estimated that nongroup market premiums would increase by 25 percent in the first year, by 50 percent by 2020, and would about double by 2026. The estimates were grounded in the well-known reality that eliminating the individual mandate and subsidies would result in fewer healthy individuals enrolling, leaving those with health care needs in a costlier risk pool.

Who would be among the uninsured? Under even a partial repeal, the Urban Institute estimated that 82 percent of those losing coverage would be in working families, 80 percent of the adults becoming uninsured would not have college degrees, and 38 percent of the newly uninsured would be young adults between the ages of 18 and 34. Researchers from Harvard and New York University found that repealing the ACA would have “stark effects” on individuals with behavioral health illnesses, estimating that 2.8 million Americans with a substance use disorder, including roughly 222,000 with an opioid disorder, would lose coverage. While repeal-and-replace would harm the country’s most vulnerable, it would also adversely impact many middle-class families.

Moreover, the Committee for a Responsible Federal Budget reminded stakeholders that the individual market would not be the only program harmed. It estimated that a full repeal of the ACA would accelerate the insolvency date for Medicare’s Hospital Insurance Trust Fund (Part A) from 2026 to 2021. At the same time, a bipartisan group of Governors across ten states described that even a “skinny” repeal would shift Medicaid costs to states, without providing the necessary resources to manage the program.

More Insurers Would Exit the Market, Leaving Consumers With Fewer Coverage Options

CBO also estimated that repeal-without-replace would drive insurers out of the individual market, leaving half of the nation’s population in areas where no insurers were offering nongroup coverage by 2020. By 2026, CBO estimated this share would increase to three-quarters of the population having no plan choice. These estimates align with findings from my colleagues here at CHIR and at the Urban Institute, where interviews with 13 health insurance company executives participating in the individual markets in 28 states revealed that many would “seriously consider” a market withdrawal if just the individual mandate was repealed without a replacement. Insurers reported that a “repeal and delay” strategy would destabilize the market and create “significant” downside risk for those remaining.

Uncompensated Care Would Put Significant Pressure on Providers

America’s Essential Hospitals, which represents 300 of the nation’s largest hospitals and health care systems, estimated that if Congress repeals the ACA without a replacement and maintains scheduled cuts to Medicare and Medicaid disproportionate share hospital (DSH) payments, essential hospitals would lose $40.5 billion between 2018 and 2026. The policy change would lead to $54.2 billion in uncompensated care costs over a 10-year period, which the organization says is a strain essential hospitals “could not sustain.” In Iowa alone, the Iowa Fiscal Partnership estimated that repeal would triple the cost of uncompensated care from $345 million to $1.2 billion in 2019. Over a 10-year period, the state projected it would see a $10 billion increase in uncompensated care, with much of the strain being put on rural hospitals. The President and CEO of Cleveland Clinic reiterated concerns of ACA coverage losses, reporting that 52 percent of hospitals in 2016 “didn’t make any money” and would be in “even deeper financial trouble” if ACA coverage were taken away. In total, the Democratic Governors Association estimated that states would accrue nearly $69 billion in uncompensated care costs over a 10-year period, if the ACA were repealed.

States Would Suffer Broad Economic Fallout: Job Loss, Reduced Output, Premature Deaths

In addition to increasing the uninsured and sending uncompensated care costs soaring, The Commonwealth Fund and researchers at George Washington University also found that repeal-without-replace would have broad economic consequences. Researchers found that repealing only the tax credit and Medicaid expansion elements would lead to $140 billion in federal funding losses for health care in 2019, causing a subsequent loss of 2.6 million jobs across the country. The majority of jobs lost would be in non-health care industries and, without an ACA replacement, there would be a “$1.5 trillion loss in gross state products and a $2.6 trillion reduction in business output” between 2019 and 2023. In their own analyses, states corroborated these economic findings. UC Berkley’s Center for Labor Research and Education found that under a partial repeal, California would suffer from 209,000 lost jobs, $20.3 billion in lost gross domestic product, and $1.5 billion lost in state and local tax revenue. Arizona State University’s Seidman Research Institute similarly found that if the state lost federal funding under the ACA, it would leave a “$5 billion hole” in the state’s economy, cost over 62,000 jobs statewide, and lower personal income by almost $3.5 billion. In addition to adding $1.4 billion to the state’s deficit, Pennsylvania’s Budget and Policy Center found, most consequentially, that repealing Medicaid expansion and the tax credit subsidies would result in an additional 3,425 premature deaths each year.

Take-Away: States’ latest lawsuit alleging that the ACA is unconstitutional and “must also fall,” ignores the serious consequences of repeal-without-replace. When such a strategy was proposed last summer, Congress rejected it after realizing the significant economic and public health consequences that would ensue, including: millions of Americans losing coverage, premiums doubling, insurers exiting the market, and the costs of uncompensated care putting providers at significant financial risk. A growing body of research confirms states’ fears that repeal-without-replace would result in heavy job and production losses; repercussions these state litigants seem to have overlooked.

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