Why Do Colorado Insurance Exchange Applicants Need to Disclose Asset Information?

There have been a couple of recent articles about Colorado’s experience enrolling people in expanded Medicaid and qualifying them for subsidies on the state-run insurance exchange.  One problem is a lengthy application form asking for all sorts of personal and financial data, including the applicant’s assets. If there are errors entering the data, the computer system freezes the application, and approval can take weeks.

And why do people who want to access the exchange need to apply for Medicaid first?  There are two main reasons.  The first is that Section 1413 of the Affordable Care Act (ACA) requires there to be a single, streamlined application to allow people to access all health financing options (Medicaid, exchange subsidies, etc.) under the law, although it permits the federal Department of Health and Human Services or various states to do this).  For those who make less than the Medicaid expansion cutoff (138 percent of the poverty line, or about $15,900 per year), the ACA originally assumed they would be eligible for Medicaid and thus eliminated any insurance subsidies.  Since the U.S. Supreme Court’s opinion in National Federation of Independent Business v. Sebelius made Medicaid expansion optional for the states, people in opt-out states making less than that amount are in a really bad position – too wealthy for Medicaid, but not wealthy enough for exchange subsidies.  The point is that before people are deemed eligible for the exchanges, whoever considers their applications must conclude they are not eligible for Medicaid.

That brings us to the second reason why the Department of Health Care Policy and Financing wants to know about applicants’ assets, even though it’s not really pertinent for Medicaid eligibility (and it’s certainly not pertinent for exchange subsidy eligibility).  Colorado has long used a horizontally integrated public benefits admissions process to determine eligibility for public assistance programs.  When people apply for Medicaid, they are automatically considered for the Children’s Health Insurance Program, the Supplemental Nutrition Assistance Program and a number of other welfare programs.  Sound like a potential mess?  You could say that.

Mess or not, the system remains in place to this day.  Before a Colorado resident qualifies for exchange subsidies, he or she must submit an application that it used for Medicaid and all public assistance programs.  It’s called the Program Eligibility and Application Kit (PEAK).  One of the programs for which PEAK determines eligibility is the Medicaid Long-Term Care Program, which pays for nursing facility care for recipients over age 65.  Unlike traditional Medicaid, the eligibility test for that does include a maximum asset component – generally, an applicant won’t be eligible if he or she has more than a couple thousand dollars of qualifying assets (under the theory that those with valuable assets should sell them to pay for their own nursing care before making taxpayers do it).

And there you have it.  That’s why people applying for subsidies on the Colorado health insurance exchange need to disclose various assets, and (indirectly) why the applications of many people are frozen and sent to weeks-long limbo.  Funny thing is, the whole single application and horizontal integration was supposed to make it easier for public assistance applicants, not harder.

Pulling the Rug Out – Lawsuits Challenge the Legality of Federal Exchange Subsidies (Part II)

This post continues the discussion of the handful of lawsuits challenging the legality of the federal subsidies for people shopping on the federally run insurance exchange in states that elected not to run exchanges themselves.  See Part I here.

To recap:  There is a statutory hole in the ACA that – if the plaintiffs in the pending lawsuits are to be believed – makes federal subsidies provided to individuals shopping on the federally run insurance exchange illegal.  Needless to say, this would be a huge blow for the ACA in the states that elected not to operate their own exchanges.

I think there might be a way out of this for the federal government.  My first thought when reading about these lawsuits was “but who has standing?”  Here’s what I mean by that.  In general, you can’t go to federal court to challenge federal or state government HC BLOG_rugspending – there won’t be standing (yes, there is an exception for spending that violates the Establishment Clause, and yes, you can probably imagine a scenario where someone comes up with a creative theory on why they are injured by spending and thus have standing, but bear with me).  But this situation is different because the subsidy mechanism involves more than federal spending; there’s also a penalty component.  Basically, the shared employer responsibility payment statute says that if a large employer doesn’t offer insurance to its employees, and a single employee is eligible for subsidies on a government-run insurance exchange, the employer must pay a penalty equal to the size of that subsidy times the number of its full-time employees.  The Internal Revenue Service has interpreted that to apply in states that run their own exchanges, as well as in those letting the federal government do it.

And there’s the potential window of opportunity.  As long as the GOP controls the House of Representatives – and perhaps just enough senators to filibuster – there can’t be a legislative fix to the ACA.  But there’s nothing stopping the IRS from pulling the rug out from under the plaintiffs in these cases.  How can they do that?  By promulgating new regulations switching course and exempting employers in the federally run exchange states from penalties under this part of the ACA.  Do that, and the plaintiffs in various pending lawsuits would no longer face exposure.  Now, the standing ship has probably sailed – the general rule in federal court is that if standing exists at the start of a case, it will always exist.  But there’s another legal doctrine – mootness – that applies when post-filing events occur to render a lawsuit pointless.  Here, if the IRS removed the employer penalty, the government could then argue that the cases are moot because the impending injury justifying the lawsuits no longer exists.

I should add two caveats.  First, there is an exception to mootness – voluntary cessation – that applies when the event causing mootness is within the control of the party asserting the defense and could re-occur.  Second, there is a creative argument that even individuals receiving subsidies might be “injured” insofar as the subsidies effectively push the price of coverage low enough for the individual mandate to apply to them.  I’m not sure what I think about that, but at the very least, reversing the current IRS interpretation would kick the pending lawsuits out of the federal courts (setting aside the voluntary cessation defense).

Image courtesy of Flickr by Evil Erin