Legal limits and the implementation of the Affordable Care Act.

Author:Bagley, Nicholas
Position:Symposium: The Bounds of Executive Discretion in the Regulatory State

INTRODUCTION I. TESTING LEGAL LIMITS A. Essential Health Benefits B. Administrative Delays C. Hardship Exemptions D. Premium Subsidies E. Cost-Sharing Subsidies F. Risk Corridor Appropriations G. The Hill Fix H. The Private Option II. An Assessment INTRODUCTION

Accusations of illegality have dogged the Obama Administration's efforts to implement the Affordable Care Act (ACA), (1) the most ambitious piece of social legislation since the advent of Medicare and Medicaid. Some of the accusations have merit; indeed, it would be surprising if they did not. Even as the ACA's rollout has exposed unanticipated difficulties in the statutory design, congressional antipathy to health reform has precluded looking to the legislature to iron out those difficulties. To secure his principal achievement, President Obama has repeatedly tested the limits of executive authority in implementing the ACA.

Six years after its enactment and two years after its full implementation, now is an auspicious time to take stock. Moving past the partisan bickering, to what extent has the Obama Administration skirted the law or broken conventions to implement the ACA? In what ways, if any, has the messy implementation process set worrisome precedents? How troubled should we be if the Administration has at times brushed up against and even exceeded the limits of its power?

To get traction on these questions, this Article takes a close look at the most hotly debated legal questions surrounding the ACA's rollout. The selections reflect my own judgments about the most serious allegations of executive impropriety, but they are not idiosyncratic: they closely track--and indeed go beyond--the selections made by those seeking to demonstrate the President's disregard for law. (2) My hope is that a holistic and even-handed examination of the Administration's purported legal excesses will provide a useful focal point for understanding how law restrains executive discretion in a time of polarized politics. The Article closes with some thoughts about the status of executive lawbreaking in American constitutional culture and how to discipline such lawbreaking when it occurs.


    1. Essential Health Benefits

      To ensure access to a comprehensive roster of basic services, the ACA requires health insurance for individuals and small businesses to cover the "essential health benefits." (3) The ACA, however, does not define what those benefits are. Instead, it instructs the Secretary of the Department of Health and Human Services (HHS) to specify what counts as essential, subject to some general guidelines. (4) Essential benefits must include, for example, emergency services, hospitalization, prescription drugs, and the like. (5) The scope of the benefits must also be "equal to the scope of benefits provided under a typical employer plan, as determined by the Secretary." (6) The Secretary is otherwise afforded wide discretion to decide which treatments and services are essential.

      Actually making those decisions promised to be both delicate and controversial. Too expansive a definition would drive up the cost of coverage, burdening working families and discouraging healthy people from buying insurance. But a narrower definition would deprive patients of access to care deemed nonessential, which would infuriate hospitals, physicians, and drug manufacturers that wished to offer that care. Whatever the ultimate outcome, the Secretary's decision would "influence the nature of coverage available to millions of people in the United States." (7)

      When Congress enacted the ACA, the universal expectation was that the Secretary would specify a uniform, nationwide roster of benefits. It was thus front-page news--"a major surprise" (8)--when, late in 2011, HHS released a terse, thirteen-page Internet bulletin announcing that it would punt the decision to the states. (9) Per the bulletin, each of the states would identify a "benchmark" plan from among existing plans sold to small businesses or government employees. (10) Whatever benefits that the benchmark plan covered would then be considered "essential" within the state. (11) For states that declined to select a plan, the benchmark would be the largest small-group plan in the state. (12) After President Obama's 2012 reelection, HHS proposed and finalized a rule adopting the benchmark approach. (13)

      Politically, the decision was shrewd. It allowed the Obama Administration to sidestep a fractious rulemaking, avoid disruption to state insurance markets, and signal that the ACA was not a national takeover of the health insurance markets. As a policy matter, the approach also held appeal. The bulletin explained that even across different states, health plans "do not differ significantly in the range of services they cover." (14) Because no state could select a barebones plan and deny vital services to their residents, (15) deferring to the states appeared reasonable.

      But is the benchmark approach legal? (16) Nothing in the ACA explicitly prohibits the Secretary from adopting a state-specific, non-uniform approach to essential health benefits. As a first cut, the ACA's silence suggests that HHS, per Chevron, (17) can fill the gap as it sees fit.

      The lack of an outright prohibition, however, does not necessarily mean that HHS can allow the essential health benefits to vary from state to state. (18) The question under Chevron "is always whether the agency has gone beyond what Congress has permitted it to do," (19) and it is difficult to square the benchmark approach with many features of the ACA's design. The implication is that, although Congress gave HHS broad discretion to define the essential health benefits, it may not have conferred the discretion to define them in this state-specific manner. (20)

      The most obvious objection to the Agency's approach is actually the least persuasive. The ACA delegates to HHS--not the states--the power to define the essential health benefits. (21) Under D.C. Circuit case law, the Agency can't subdelegate that power to the states unless the ACA says it can (22)--and the ACA says no such thing. At first blush, HHS's pre-commitment to adopting state-selected benchmarks looks like that kind of prohibited subdelegation.

      But is that really what's going on? Under the same D.C. Circuit case law, an agency can properly "turn to an outside entity for advice and policy recommendations, provided the agency makes the final decisions itself." (23) To my mind, that's the more accurate way to characterize what HHS has done. The Agency made the final decision about essential health benefits when it identified a narrow set of presumptively acceptable benchmark plans. Having made that critical decision, HHS can heed a state's choice about which particular plan, among acceptable alternatives, should serve as the benchmark.

      A much more serious objection is that the benchmark approach renders a number of provisions of the ACA inscrutable or unnecessary. Consider, for example, how the ACA treats state coverage mandates. Such mandates are common: states variously require health plans to cover benefits like in vitro fertilization or applied behavior analysis for autism. (24) But Congress did not want federal taxpayers, who heavily subsidize individual health plans, to foot the bill for state-mandated treatments beyond those deemed essential. (25) The ACA thus limits federal subsidies to covering the essential health benefits (26) and requires states "to defray the cost of any additional benefits." (27)

      The benchmark approach throws this carefully considered allocation of financial responsibility out the window. By dint of state law, any state-selected benchmark plan will necessarily cover state-mandated benefits. Such benefits will thus be folded into the definition of essential health benefits within the state. The upshot is that even a state with extravagant coverage mandates will never have to assume any additional costs to cover them. In effect, the benchmark approach allocates more federal subsidies to states with more extensive coverage mandates--contrary to Congress's deliberate attempt to avoid that result.

      The difficulties run deeper. For example, the Office of Personnel Management (OPM) is supposed to contract with insurers to provide at least two "multi-State" plans on each state's exchange. (28) But those plans, by statute, must "offer[] a benefits package that is uniform in each State and consists of the essential benefits." (29) A benefits package cannot be uniform across states if the essential health benefits vary from state to state.

      OPM has tried to avoid the problem by reading the phrase "uniform in each State" to mean that the benefits "must be uniform within a State, but not necessarily uniform among States." (30) That interpretation is linguistically plausible, but it leaves the uniformity requirement with no work to do. A given health plan's benefits are uniform in the state in which it is sold; if an insurer wished to offer a different benefits package, it would create and market a different health plan. Because the benefits package of a given multistate health plan will thus never vary within a state, Congress had no need to insist on uniformity "within a State," as OPM would have it. (31) The provision is meaningful only if it requires uniformity across states. OPM's interpretation also trivializes a related provision allowing states to impose their coverage mandates on multistate plans, but only if they pay the increased expense. (32) This deliberate and limited carve-out from the uniformity requirement would have been totally unnecessary if state plans must only be "uniform within a State."

      All told, the benchmark approach is in tension with several ACA provisions. The hard question is whether that tension is substantial enough to justify the inference that the adoption of such an approach exceeded HHS's delegated authority. In my judgment, it is not, although the...

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