Nos. 11-393 and 11-400 WILSON-EPES PRINTING CO., INC. – (202) 789-0096 – WASHINGTON, D. C. 20002 IN THE Supreme Court of the United States ———— NAT’L FEDERATION OF INDEPENDENT BUSINESS, ET AL., Petitioners, v. KATHLEEN SEBELIUS, SECRETARY OF HEALTH AND HUMAN SERVICES, ET AL., Respondents. ———— STATE OF FLORIDA, ET AL., Petitioners, v. DEPARTMENT OF HEALTH & HUMAN SERVICES, ET AL., Respondents. ———— On Writ of Certiorari to the United States Court of Appeals for the Eleventh Circuit ———— BRIEF FOR AMICI CURIAE ECONOMISTS IN SUPPORT OF PETITIONERS REGARDING SEVERABILITY ———— * Counsel of Record STEVEN G. BRADBURY STEVEN A. ENGEL * MICHAEL H. PARK ELISA T. WIYGUL DECHERT LLP 1775 I Street, NW Washington, DC 20006 (202) 261-3300 [email protected]
Transcript
Nos. 11-393 and 11-400
WILSON-EPES PRINTING CO., INC. – (202) 789-0096 – WASHINGTON, D. C. 20002
IN THE
Supreme Court of the United States ————
NAT’L FEDERATION OF INDEPENDENT BUSINESS, ET AL.,
Petitioners, v.
KATHLEEN SEBELIUS, SECRETARY OF HEALTH AND HUMAN SERVICES, ET AL.,
Respondents. ————
STATE OF FLORIDA, ET AL., Petitioners,
v.
DEPARTMENT OF HEALTH & HUMAN SERVICES, ET AL., Respondents.
————
On Writ of Certiorari to the United States Court of Appeals
for the Eleventh Circuit
————
BRIEF FOR AMICI CURIAE ECONOMISTS IN SUPPORT OF PETITIONERS
REGARDING SEVERABILITY
————
* Counsel of Record
STEVEN G. BRADBURY STEVEN A. ENGEL * MICHAEL H. PARK ELISA T. WIYGUL DECHERT LLP 1775 I Street, NW Washington, DC 20006 (202) 261-3300 [email protected]
I. AS A MATTER OF BASICECONOMICS, THE ACA CANNOTFUNCTION “IN A MANNERCONSISTENT WITH THE INTENT OFCONGRESS” WITHOUT THEINDIVIDUAL MANDATE ................................7
A. Without The Economic SubsidyThe Individual Mandate WouldProvide, The Remainder Of TheACA Would Impose Huge Uncom-pensated Costs On Health Insur-ance Companies .........................................7
1. The ACA’s insurance re-forms and taxes will im-pose significant costs onhealth insurers ..................................9
2. The individual mandatewill provide counter-balancing benefits tohealth insurers .................................11
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3. The Medicaid expansionalso will provide a benefitto health insurers .............................13
4. The individual mandateand Medicaid expansionwill provide benefits pro-portionate to the increasedregulatory costs under theACA...................................................15
B. The Individual Mandate Also Miti-gates The Costs That The ACAWould Impose On Other MarketParticipants ..............................................17
1. The benefit to insurersfrom the individualmandate would translateinto decreased premiumsfor consumers....................................17
2. The individual mandatewould also offset costs theACA imposes on othermarket participants .........................20
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II. GIVEN THAT THE INDIVIDUALMANDATE IS TIED TO SO MANYSECTIONS OF THE ACT, THERE ISNO PRACTICAL WAY FOR THECOURT TO SEVER THE MANDATEAND PRESERVE THE ACT ............................21
SUP. CT. R. 37.6 ...........................................................1
OTHER AUTHORITIES
Centers for Medicare & Medicaid Services,2010 Actuarial Report on the FinancialOutlook for Medicaid (Dec. 21, 2010),https://www.cms.gov/ActuarialStudies/downloads/Medicaid Report2010.pdf.............14, 15
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Centers for Medicare & Medicaid Services,National Summary of Medicaid ManagedCare Programs and Enrollment as of July1, 2010, https://www.cms.gov/MedicaidDataSourcesGenInfo/downloads/2010Trends.pdf....................14
Congressional Budget Office, An Analysis ofHealth Insurance Premiums Under thePatient Protection and Affordable Care Act(Nov. 30, 2009), http:/www.cbo.gov/ftpdocs/107xx/doc10781/11-30-premiums.pdf .......................................................17
Congressional Budget Office, Effects ofEliminating the Individual Mandate toObtain Health Insurance (June 16, 2010),http://www.cbo.gov/ftpdocs/113xx/doc11379/Eliminate_Individual_Mandate_06_16.pdf. ....................................................18
Letter from Douglas W. Elmendorf, Director,Congressional Budget Office, to Nancy Pe-losi, Speaker, House of Reps. (Mar. 20,2010), http://www.cbo.gov/ftpdocs/113xx/doc11379/AmendReconProp.pdf .....................14-15
Roger Feldman, Stephen T. Parente, Jean Ab-raham, et al., Health Savings Accounts:Early Estimates Of National Take-Up, 24Health Affairs 1582 (Nov./Dec. 2005) ...............11a
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Phil Galewitz, Kaiser Health News, StatesTurn to Private Insurance Companies forManaged Care, USA Today, Feb. 21, 2011 .........14
Bradley Herring, An Economic Perspective onthe Individual Mandate’s Severability fromthe ACA, 364 New England Journal ofMedicine e16 (Mar. 10, 2011),http://www.nejm.org/doi/full/10.1056/NEJMpv1101519..............................20, 21
Douglas Holtz-Eakin, Stephen T. Parente &Michael J. Ramlet, The EconomicImplications of Severing the IndividualMandate, American Action Forum, Jan. 5,2012, http://bit.ly/EIoStIM ............................9, 12a
Medical Expenditure Panel Survey (“MEPS”),U.S. Dep’t of Health & Human Servs.,http://meps.ahrq.gov/mepsweb ..............................8
Stephen T. Parente & Roger Feldman, Con-tinuation of Research on Consumer Di-rected Health Plans: HSA Simulation Mod-el Refinement, Final Technical Report forDHHS Contract HHSP23320054301ER(Jan. 21, 2007) ...................................................11a
Sophia Snyder, IBISWorld Industry Report52411b: Health & Medical Insurance in theUS (Dec. 2011) .................................................9, 10
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INTEREST OF THE AMICI CURIAE1
Amici Curiae are 103 economists who havestudied, researched, and participated in the nationalpolicy discussion relating to the healthcare markets.Amici include Nobel laureates, former senior gov-ernment officials, and faculty from research universi-ties around the country. Amici support the need forreform but believe that the Affordable Care Act(“ACA” or the “Act”) will likely exacerbate, ratherthan constrain, the inflation in healthcare costs thatposes a serious long-term challenge to the U.S. econ-omy. A complete list of amici can be found in theAppendix, beginning on page 1a.
Amici previously filed a brief with the Court ofAppeals for the Eleventh Circuit addressing the eco-nomic premises on which the Government relied inseeking to defend the ACA’s individual mandate as aregulation of interstate commerce. The EleventhCircuit expressly relied upon amici’s analysis in find-ing the mandate unconstitutional. See Florida ex rel.Att’y Gen. v. U.S. Dep’t of Health & Human Servs.,648 F.3d 1235, 1299 & nn.108-111, 113 (11th Cir.2011). Amici intend to file similar briefs addressingthe economic issues relating to the constitutionalityof the individual mandate and the Act’s Medicaid ex-pansion according to the schedule this Court has or-dered.
1 No counsel for any party has authored this brief inwhole or in part, and no person other than amici or their coun-sel has made a monetary contribution to the preparation orsubmission of this brief. See Sup. Ct. R. 37.6. All parties haveconsented to the filing of this brief through universal letters ofconsent on file with the Clerk of this Court.
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Amici submit this brief in support of Petition-ers’ position that the Court of Appeals erred in hold-ing that the individual mandate, which, along withrelated subsidies and the Act’s Medicaid expansion,benefits private insurance companies, can be severedfrom the many other provisions of the Act that im-pose substantial costs on those private insurers.Amici seek to assist the Court in understanding theeconomic interconnectedness of the many complexprovisions of the ACA. Those economics demonstratethe individual mandate’s true centrality to the Act,as well as the shortcomings in the Eleventh Circuit’sruling that the individual mandate could be severedfrom the rest of the ACA.
SUMMARY OF ARGUMENT
The individual mandate cannot be severedfrom the rest of the Affordable Care Act becauseCongress would not have intended the economic ef-fects of the Act without the mandate. Specifically,numerous provisions of the Act impose significantcosts on healthcare market participants, primarilyhealth insurance companies. Congress would nothave imposed such costs without the countervailingbenefits provided by the individual mandate, not justas a matter of politics, but because such an imposi-tion would undermine the central goal of the Act tomake health care more affordable. As a result, theACA fails the severability test of whether the Actwould function in a “manner consistent with the in-tent of Congress” absent the individual mandate.Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 685(1987) (emphasis in original).
The economic analysis advanced by amicieconomists demonstrates that the ACA depends on
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the individual mandate to provide a significant por-tion of the benefit necessary to counterbalance theenormous costs the Act otherwise imposes on healthinsurance providers.
Using the best available economic data andthe same projection methods employed by the De-partment of Health and Human Services, amici haveestimated the impact of the most salient healthcarereforms, looking at both the costs and benefits to thehealth insurance industry. Without the individualmandate and related subsidies, the Act is projectedto impose total net costs of $360 billion on health in-surance companies from 2012 through 2021. Withthose provisions, however, the Act would provide anet $6 billion benefit over that same time period. Inother words, from an economic perspective, the bene-fits of the individual mandate and subsidies tohealth insurance companies, along with benefits pro-vided by the Act’s Medicaid expansion, are projectedto balance, nearly perfectly, the costs that the Act’svarious regulatory mandates impose on insurers.
The Government concedes that certain provi-sions of the Act, namely the community rating andguaranteed issue reforms, must stand or fall with theindividual mandate. Yet this economic analysis de-monstrates that the mandate is needed to counter-balance numerous provisions in the Act beyond thosetwo reforms. The benefits to health insurance pro-viders of expanded private coverage under the indi-vidual mandate and subsidies for insurance purchasefar outweigh the costs imposed by the communityrating and guaranteed issue reforms, taken alone.Congress understood the individual mandate tocounterbalance a broader set of impositions on the
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insurance industry that include taxes such as the so-called “Cadillac” excise tax on high-cost health plansthat appear elsewhere in the Act.
Insurance companies are not the only marketactors that would bear the significant costs that theindividual mandate is needed to counterbalance.First, and most obviously, a steep increase in insur-ers’ costs would necessarily result in an increase inthe premiums that those insurers charge consumers.Accordingly, to invalidate only the individualmandate, while maintaining the ACA’s other, highlyburdensome regulatory provisions, would strip awaythe provision of the Act that is essential to enableprivate insurers to provide consumers with anythingclose to affordable insurance. Indeed, Congress ex-plicitly found that the purpose of the individualmandate was to reduce premiums. See ACA§§ 1501(a)(2)(F), (I), (J), 42 U.S.C. § 18091(a)(2)(F),(I), (J). Without the individual mandate, the ACA’sreforms, including but not limited to guaranteed is-sue and community rating, would cause a steep in-crease in premiums – the opposite of Congress’s ex-press intent.
Second, the Act includes trade-offs for otheractors in the healthcare system. For instance, hos-pitals and drug manufacturers face reduced reim-bursement for certain Medicare expenditures, butthose costs are offset in part by the increase in de-mand for health care manufactured by the individualmandate. As with health insurers, it is reasonable toexpect that if these actors were required to bear sig-nificant new costs, they would seek to pass alongthose costs to healthcare consumers – a result di-ametrically opposed to Congress’s intent, embodied
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in the very title of the Act, to make health care moreaffordable. Thus, Congress would not have intendedto enact those provisions without providing the af-fected market participants with the countervailingbenefit supplied by the individual mandate.
As a result, because the individual mandate isthe key to the economic viability of so many provi-sions of the Act, this Court should not engage in aline-by-line analysis of whether particular individualprovisions of the 2,700-page Act are or are not suffi-ciently independent from the individual mandate tobe severed from it. As the District Court found un-der this Court’s precedents, particularly Ayotte v.Planned Parenthood of Northern New England, 546U.S. 320, 329-30 (2006), such an exercise would be amore intrusive incursion into legislative prerogativethan simply striking down the entire Act and leavingit to Congress to rewrite the statute. See Florida exrel. Bondi v. U.S. Dep’t of Health & Human Servs.,780 F. Supp. 2d 1256, 1303-05 (N.D. Fla. 2011). Inview of the interdependence among the various regu-latory provisions under the Act, if this Court findsthat the individual mandate is unconstitutional, thenthe Act’s broader regulatory impositions, which de-pend in large part on the projected revenues gener-ated by the individual mandate, must fall as well.
ARGUMENT
The individual mandate is the centerpiece ofthe Affordable Care Act. By compelling relativelyhealthy consumers to purchase health insurance atpremiums exceeding the value of the health servicesthey can expect to receive, the individual mandatedirectly subsidizes insurers. The purpose of thatsubsidy, both economically and politically, is to coun-
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terbalance the significant costs that many other pro-visions of the Act impose on insurers, and thus toenable insurers to offer health insurance at pre-miums that, while greater than they would be absentthe Act, nonetheless remain affordable to consumers.
In ruling that the individual mandate could besevered from the rest of the Act, the Court of Appealsmisread Alaska Airlines, 480 U.S. 678. In AlaskaAirlines, this Court recognized that where, as here,the remaining provisions of a statute are literally ca-pable of functioning independently from the constitu-tionally infirm provision, “[t]he more relevant in-quiry in evaluating severability is whether the sta-tute will function in a manner consistent with theintent of Congress.” Id. at 685 (emphasis in origi-nal).
In the ACA, Congress attempted to create acarefully calibrated scheme of interrelated costs andsubsidies to expand access to health insurance whilekeeping costs affordable. See Florida, 780 F. Supp.2d at 1299-1300. In order to understand the individ-ual mandate’s place in this scheme, it is necessary tosee precisely how Congress struck the balance in theACA. As an economic analysis of these provisionsdemonstrates, absent the individual mandate, theAct could not function in a “manner consistent withthe intent of Congress,” Alaska Airlines, 480 U.S. at685 (emphasis omitted), and thus the mandate can-not be severed from the rest of the Act.
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I. AS A MATTER OF BASIC ECONOMICS,THE ACA CANNOT FUNCTION “IN AMANNER CONSISTENT WITH THEINTENT OF CONGRESS” WITHOUT THEINDIVIDUAL MANDATE
A. Without The Economic Subsidy TheIndividual Mandate Would Provide,The Remainder Of The ACA WouldImpose Huge Uncompensated CostsOn Health Insurance Companies
Amici’s economic analysis of the ACA, as de-tailed below and in the Appendix to this brief, de-monstrates that the Act includes various provisionsthat impose significant costs on health insurancecompanies and that the individual mandate, relatedsubsidies, and Medicaid expansion provide counter-balancing benefits to those companies, in effect pro-viding insurers with a subsidy that allows them tolower costs to the consumers who voluntarily chooseto purchase health insurance.2
2 The ACA’s impact on the health insurance industry isdescribed in greater detail in the industry’s brief filed in sup-port of certiorari. See Brief of America’s Health InsurancePlans as Amicus Curiae in Partial Support of Certiorari Reviewat 3, Nat’l Federation of Indep. Bus. v. Sebelius, U.S. Dep’t ofHealth & Human Servs. v. Florida, Florida v. U.S. Dep’t ofHealth & Human Servs., Nos. 11-393, 11-398, and 11-400 [he-reinafter AHIP Certiorari Brief] (“At the root of this litigationare the individual mandate and its relationship to [the] ACA’sremaining provisions. Taken together, those provisions willfundamentally shift the way that health insurance is confi-gured, financed, marketed, and sold, eliminating many of therisk management measures upon which insurers have relied fordecades.”); id. at 7 (ACA will cause “seismic changes” for health
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To determine the costs and benefits of theACA to health insurers, amici employed the sameprojection model used by the Department of Healthand Human Services based on data sources includingclaims data from several nationwide employers, aswell as the Government’s own authoritative MedicalExpenditure Panel Survey (MEPS), specifically theMedical Expenditure Panel Survey Household Com-ponent (MEPS-HC) and the Medical ExpenditurePanel Survey Insurance Component (MEPS-IC).3 Acomplete chart of amici’s projections, along with amore detailed explanation of these sources and me-thodologies, is attached hereto in the Appendix, be-ginning at page 10a.
Based on this economic analysis, the centralityof the individual mandate, along with related subsi-dies, is clear: With it, insurance companies can beexpected essentially to break even under the provi-sions of the Act over the course of the decade from2012 through 2021. Without it, insurance companieswould be subjected to estimated net costs of $360 bil-lion over that same time period, which they wouldlargely pass on to consumers in the form of higherpremiums. In other words, without the individualmandate, the Act would result in dramatically in-
insurers); id. at 8 (ACA’s insurance reforms “requir[e] healthplans to undertake a wholesale and fundamental overhaul oftheir methods for offering insurance”).
3 MEPS is collected and maintained under the auspicesof the U.S. Department of Health and Human Services. SeeMedical Expenditure Panel Survey (“MEPS”), U.S. Dep’t ofHealth & Human Servs., http://meps.ahrq.gov/mepsweb (lastvisited Jan. 4, 2012).
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creased healthcare costs – the opposite of what Con-gress intended. Thus, the various regulatory bur-dens that the ACA imposes on insurers cannot be se-vered from the individual mandate because themandate is the keystone that holds together the eco-nomic viability of the entire “carefully-balanced andclockwork-like statutory arrangement” that is theACA. Florida, 780 F. Supp. 2d at 1299.
1. The ACA’s insurance reformsand taxes will impose signif-icant costs on health insurers
Absent the offsetting benefits from the indi-vidual mandate, related subsidies, and the Medicaidexpansion, the costs the Act would impose on insur-ers are staggering. The Act’s major insurance re-forms and taxes would cost insurers an estimated to-tal of more than $715 billion from 2012 through2021. From a low of approximately $10 billion in2012, before many of the major reforms such asguaranteed issue take effect, these costs are pro-jected to rise every year, exceeding $100 billion peryear in 2019 and $170 billion per year in 2021. SeeAppendix at 10a; see also Douglas Holtz-Eakin, Ste-phen T. Parente & Michael J. Ramlet, The EconomicImplications of Severing the Individual Mandate,American Action Forum, Jan. 5, 2012,http://bit.ly/EIoStIM.
For comparison, IBISWorld estimates thehealth insurance industry’s nationwide revenue at$677.3 billion in 2011 with a profit margin of 4.5%,or roughly $30.5 billion. See Sophia Snyder, IBIS-World Industry Report 52411b: Health & Medical In-surance in the US 7, 8, 45 (Dec. 2011). Even takinginto account the annual inflation-adjusted revenue
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growth of 5.0% for health insurers projected from2011 through 2016, see id. at 5, 11, the $71.5 billionin average annual costs that the ACA would imposeon health insurers (if the benefits from the individualmandate and the Medicaid expansion were excluded,as described below) constitutes a very substantialpercentage of their revenue and an amount thatwould dwarf their current profit margin.4
Based on amici’s analysis, the costs imposedby the Act include:
expansion of dependent coverage to age 26($77 billion over ten years), ACA § 1001, 42U.S.C. § 300gg-14(a);
elimination of annual and lifetime out-of-pocket coverage limits ($51 billion), ACA§§ 1001, 10101(a), 42 U.S.C. § 300gg-11;
an excise tax on health insurers ($90 billion),ACA §§ 9010, 10905, Health Care and Educa-tion Reconciliation Act of 2010 (HCERA)§ 1406;
the so-called “Cadillac” tax on high-cost healthplans ($218 billion), ACA § 9001, 26 U.S.C. §4980I; and
the expanded essential health benefits pack-age, which consists of the prohibition on con-sideration of pre-existing conditions, guaran-teed issue, and community rating ($280 bil-
4 Indeed, as America’s Health Insurance Plans haspointed out, the ACA, if left standing in whole or in part, willforce health insurers to transform their business models fun-damentally. See AHIP Certiorari Brief at 3, 7, 8.
See Appendix at 10a.5 See also generally Florida,648 F.3d at 1365-71 (Appendix A to Eleventh CircuitMajority Opinion describing overall structure of theAct, by Title).
Accordingly, the expanded essential healthbenefits package – which consists of the core insur-ance reforms that even the Government concedes arenot severable from the individual mandate – ac-counts for only about 39 percent ($280 billion of $715billion) of the total costs to health insurers that ami-ci predict. Other ACA provisions, such as the “Cadil-lac” tax, account for the rest of these costs. Thus, theGovernment’s position that only the guaranteed is-sue and community rating provisions are not severa-ble from the individual mandate is untenable in lightof the economic realities that multiple other provi-sions of the Act will create for the health insuranceindustry.
2. The individual mandate willprovide counterbalancingbenefits to health insurers
On the other side of the ledger, expanded pri-vate coverage under the individual mandate and re-
5 In addition, other provisions of the Act, such as the re-quirements that plans cover certain preventive care for child-ren, ACA § 1001, 42 U.S.C. §§ 300gg-13(a), are likely also toimpose direct or indirect costs on insurers, but their effects aremore difficult to quantify.
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lated subsidies would benefit insurers by approx-imately $366 billion during that same 2012 to 2021time period.6 Notably, this benefit of $366 billion farexceeds the cost of $280 billion from the expandedcoverage reforms – once again belying the Govern-ment’s position that only the core insurance reformsof guaranteed issue and community rating cannot besevered from the individual mandate.
In particular, the individual mandate and re-lated subsidies would provide annual benefits rang-ing from $51 billion in 2014, the first year of themandate, to approximately $41 billion in 2021.7 Thisbenefit will occur because the mandate will push
6 The benefits projected to accrue to health insurers un-der the individual mandate include the refundable and advan-ceable premium credits and cost-sharing subsidies that the Actprovides to uninsured individuals and families with incomesfrom 133 percent to 400 percent of the Federal Poverty Levelwho purchase health insurance on the new exchanges the Actcreates. See 26 U.S.C. § 36B; 42 U.S.C. § 18071. Because thetotal amount of these subsidies depends upon enrollment, in-cluding compulsory enrollment, it is not practicable to disag-gregate the benefits associated with the individual mandatefrom those associated with these related subsidies. In addition,the mandate is designed to, and may be expected to, encourageconsumers to purchase health insurance for reasons other thanpurely economic calculations, that is, because they wish tocomply with the law.
7 Amici project that the benefit to insurance companiesas a result of the individual mandate and related subsidies willdecrease over time because the rate of medical care cost growth,and therefore the rate of health insurance cost increases, islikely to outpace the penalties for non-compliance with themandate and the subsidies the Act provides for those buyinghealth insurance.
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people who had previously made a rational economicdecision not to purchase health insurance – that is,people who could expect the premiums they wouldpay to exceed the economic benefit they would re-ceive from coverage – to enter the health insurancemarket.8 Insurers, standing on the other side of thatmandated transaction, would directly benefit from anexchange in which premiums they take in from new-ly mandated enrollees are likely to be greater thanbenefits they pay out. Thus, by compelling theseconsumers to purchase health insurance at disad-vantageous prices, the individual mandate wouldsubsidize the health insurance industry, which is ne-cessary to counteract the costs otherwise imposed bythe Act.
3. The Medicaid expansion alsowill provide a benefit tohealth insurers
In addition to the individual mandate, amiciproject that private insurers will receive a substan-tial benefit from the Act’s expansion of Medicaid eli-gibility. To administer Medicaid, the States have in-creasingly turned to managed care, in which privateinsurance companies provide Medicaid benefits toindividuals in return for fixed monthly paymentsfrom the States for each Medicaid patient. The Cen-ters for Medicare and Medicaid Services (CMS) esti-
8 In particular, the individual mandate targets relative-ly young and healthy consumers, whose income exceeds the ex-panded class of those entitled to Medicaid and for whom thepurchase of insurance at premiums set by community ratingwill in nearly all cases prove to be a bad economic bet.
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mates that as of July 1, 2010, approximately 71 per-cent of Medicaid recipients were in managed careprograms, up from 57 percent in 2001. See Centersfor Medicare & Medicaid Services, National Sum-mary of Medicaid Managed Care Programs andEnrollment as of July 1, 2010, https://www.cms.gov/MedicaidDataSourcesGenInfo/downloads/2010Trends.pdf.
The move to managed Medicaid has increasedeven during the past year. Seventeen States alreadyrequire non-long-term care Medicaid enrollees tosign up for managed care; six require long-term carerecipients to enroll in managed care plans; and atleast 10 others, including Florida, Maryland, NewJersey, and Rhode Island, are considering intro-ducing or expanding the use of managed care to long-term care. See Phil Galewitz, Kaiser Health News,States Turn to Private Insurance Companies for Ma-naged Care, USA Today, Feb. 21, 2011.
The ACA provides that Medicaid coverage willbe expanded to cover those with incomes of up to 133to 138 percent of the Federal Poverty Level begin-ning in 2014. See ACA §§ 2001, 2002, 42 U.S.C. §1396a. This expanded coverage is projected to in-crease enrollment by as many as 16 to 20 million in-dividuals and to increase costs by $428 billion be-tween 2014 and 2019. See Centers for Medicare &Medicaid Services, 2010 Actuarial Report on the Fi-nancial Outlook for Medicaid, i, iv, 27-28 (Dec. 21,2010) [hereinafter CMS 2010 Report], https://www.cms.gov/ActuarialStudies/downloads/MedicaidReport2010.pdf; Letter from Douglas W. Elmendorf,Director, Congressional Budget Office, to Nancy Pe-losi, Speaker, House of Reps. 9 (Mar. 20, 2010),
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http://www.cbo.gov/ftpdocs/113xx/doc11379/AmendReconProp.pdf (16 million additional enrollees inMedicaid and Children’s Health Insurance Program(CHIPS)). In its projections of Medicaid costs, theCMS “assum[es] that many of the newly eligible Me-dicaid enrollees in 2014 will be enrolled in Medicaidmanaged care plans, as has been true of currentlyenrolled children and adults.” CMS 2010 Report at20; see also id. at 24 (referring to “the increasingproportion of the adult Medicaid population enrolledin managed care plans”).
As a result of the ACA’s Medicaid expansion,private insurance companies are projected to benefitfrom $35 billion in 2014 up to nearly $56 billion in2021, net of the industry’s expected loss of some cus-tomers that previously had private insurance butwill switch to non-managed care Medicaid, for a totalbenefit of $356 billion.9
4. The individual mandate andMedicaid expansion will pro-vide benefits proportionate tothe increased regulatory costsunder the ACA
Taken together, the Act’s Medicaid expansionand the individual mandate and related subsidieswill provide a total benefit to health insurers of ap-proximately $721 billion from 2012 to 2021. Thesebenefits will effectively neutralize the increased costs
9 As a result of this significant benefit supplied by theMedicaid expansion, this economic analysis also supports theconclusion that those provisions, like the individual mandate, isnon-severable from the rest of the Act.
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the Act imposes on health insurers. Before the indi-vidual mandate and Medicaid expansion go into ef-fect in 2014, and also before most of the cor-responding cost-imposing provisions go into effect,the Act is estimated to cost insurers about $10 billionper year. (The fact that both the benefit and the costprovisions phase in over time provides further evi-dence that these provisions were intended to workhand in hand.) Then, from approximately 2014 to2017, the Act will provide a net benefit to insurers of$31 to $42 billion per year. In 2018, insurers can beexpected to break even, relatively speaking, and thenstarting in 2019, the Act’s costs will again increa-singly exceed its benefits.10 See Appendix at 10a.
Consistent with Congress’s intent to expandhealth insurance coverage while minimizing the in-crease in premiums, the total costs and benefits fromthis snapshot of the Act’s complex economic effectsnearly balance each other out, leaving just a $5.8 bil-lion total net benefit to insurers during the decadefrom 2012 through 2021. See Appendix at 10a. Thisis not a coincidence. Removing the individualmandate from this carefully balanced accountingwould thus fundamentally upset the legislative de-sign of the Act.
10 This cost/benefit imbalance will result largely be-cause, with rising healthcare costs, more and more healthcareplans will fall within the range that is subject to the “Cadillac”tax. See Appendix at 10a.
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B. The Individual Mandate Also Miti-gates The Costs That The ACAWould Impose On Other MarketParticipants
1. The benefit to insurers fromthe individual mandate wouldtranslate into decreasedpremiums for consumers
Amici’s economic analysis as presented in theAppendix has focused upon the direct impact that,ceteris paribus, the ACA can be projected to have oninsurance companies. Yet the individual mandate’ssubsidy to insurers is not an end in itself. As Con-gress was well aware, the individual mandate wasnecessary to ensure that the costs of the Act’s regula-tory mandates are not passed on to consumers.
As the Congressional Budget Office (CBO) re-ported in late 2009, without the individual mandate,the ACA’s reforms, including but not limited to theguaranteed issue and community rating reforms,would cause a substantial increase in the premiumsconsumers could expect to pay. See CongressionalBudget Office, An Analysis of Health Insurance Pre-miums Under the Patient Protection and AffordableCare Act 5, 6 (Nov. 30, 2009), http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-premiums.pdf (analyz-ing a Senate proposal very similar to the ACA asenacted and estimating that average premiums innongroup market would be 27 to 30 percent higherbecause of expanded coverage but 7 to 10 percentlower because of additional enrollees and an addi-tional 7 to 10 percent lower because of other rulechanges affecting insurance companies). In fact,
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seven months after providing this analysis, the CBO,along with Congress’s Joint Committee on Taxation(JCT), estimated that eliminating the individualmandate would result in “adverse selection,” which“would increase premiums for new non-group policies. . . by an estimated 15 to 20 percent relative to cur-rent law [with the ACA fully intact].” CongressionalBudget Office, Effects of Eliminating the IndividualMandate to Obtain Health Insurance 2 (June 16,2010),http://www.cbo.gov/ftpdocs/113xx/doc11379/Eliminate_Individual_Mandate_06_16.pdf.
Eliminating the individual mandate would in-crease premiums because insurers can be expected toattempt to pass along new costs to consumers whopurchase health insurance. The size of the premiumrate increases that insurance providers will actuallybe able to charge, however, will likely be limited byseveral factors, including competition from the ex-changes the ACA sets up, 42 U.S.C. § 18031, newand more stringent medical loss ratio requirementsunder the ACA, id. § 300gg-18, and State and federalmonitoring of premium increases, id. § 300gg-94.
To the extent that increased costs for insurersare ultimately borne by consumers of health insur-ance in the form of elevated premiums, Congresswould not have intended to pass a law that wouldcause such premium increases without the counter-vailing force of the individual mandate and relatedsubsidies exerting downward pressure on premiums.The individual mandate is widely projected to miti-gate that increase in premiums for precisely the rea-son that Congress intended: The individual mandate
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forces healthy people who are not participants in thehealth insurance market to join that market.
The intent of Congress to take advantage ofthis link between the individual mandate and lowerhealth insurance premiums is beyond dispute, asCongress explicitly found that
[b]y significantly increasing health in-surance coverage, the [individualmandate] requirement, together withthe other provisions of this Act, will mi-nimize . . . adverse selection and broadenthe health insurance risk pool to includehealthy individuals, which will lowerhealth insurance premiums. The re-quirement is essential to creating effec-tive health insurance markets in whichimproved health insurance products thatare guaranteed issue and do not excludecoverage of pre-existing conditions canbe sold.
ACA § 1501(a)(2)(I), 42 U.S.C. § 18091(a)(2)(I); seealso ACA § 1501(a)(2)(F), 42 U.S.C. § 18091(a)(2)(F)(“By significantly reducing the number of the unin-sured, the requirement, together with the other pro-visions of this Act, will lower health insurance pre-miums.”); ACA § 1501(a)(2)(J), 42 U.S.C.§ 18091(a)(2)(J) (the individual mandate will in-crease economies of scale, thereby lowering pre-miums); Petition for Writ of Certiorari of U.S. De-partment of Health and Human Services at 7, 24,U.S. Department of Health & Human Servs. v. Flori-da, No. 11-400 (quoting ACA § 1501(a)(2)(I), 42
20
U.S.C. § 18091(a)(2)(I)).11 If the individual mandateis invalidated as unconstitutional, then the link be-tween the mandate and these premium reductionswould be broken and Congress’s objective of loweringpremiums would be thwarted.
2. The individual mandatewould also offset costs theACA imposes on other marketparticipants
The individual mandate can also be expectedto subsidize other market participants that are sub-ject to costs as a result of other provisions of the Act.For instance, hospitals and drug manufacturers faceseveral provisions that will reduce their revenue, in-cluding lower Medicare payments for hospitals “be-cause of productivity adjustments to the annual‘market-basket’ updates” and lower Medicare pay-ments for drug manufacturers in Medicare Part D’sso-called donut hole. Bradley Herring, An EconomicPerspective on the Individual Mandate’s Severabilityfrom the ACA, 364 New England Journal of Medicinee16 (Mar. 10, 2011), http://www.nejm.org/doi/full/10.1056/NEJMpv1101519. As Herring pointsout, drug manufacturers, medical device manufac-turers, and health insurers will each also be subjectto a new flat fee or tax under the ACA. See id.
11 In addition, as America’s Health Insurance Plans haspointed out, Congress legislated in the shadow of the adverseexperiences of numerous States that have enacted communityrating and guaranteed issue reforms but not individual man-dates. See AHIP Certiorari Brief at 19-22.
21
The individual mandate provides a subsidy tothese market actors that mitigates the effects ofthese provisions: “These [cost-imposing] provisionsseemed politically possible because the healthcareindustry was willing to make concessions on pricesand fees in return for the large increase in the num-ber of people with insurance that was expected to oc-cur under the ACA,” id., because of the individualmandate, related subsidies, and Medicaid expansion.“A large body of research suggests” that an increasein the ranks of America’s insured would likely lead togreater healthcare consumption. Id. This wouldprovide a boon to hospitals and drug manufacturers.
Indicative of the Act’s sprawling and intercon-nected structure, the cost-imposing provisions Her-ring highlights are not located within Title I of theAct, the title dealing explicitly with insurance regu-lation. See, e.g., ACA § 3301, codified at, e.g., 42U.S.C. §§ 1395w-102(b), 1395w-114a, 1395w-153(Title III of the Act, which, among other changes toMedicare, “revises the Medicare Part D prescriptiondrug program and reduc[ing] the so-called ‘donuthole’ coverage gap in that program,” Florida, 648F.3d at 1368). See generally Florida, 648 F.3d at1365-71 (Appendix A to Eleventh Circuit MajorityOpinion describing overall structure of the Act, byTitle).
II. GIVEN THAT THE INDIVIDUAL MAN-DATE IS TIED TO SO MANY SECTIONSOF THE ACT, THERE IS NO PRACTICALWAY FOR THE COURT TO SEVER THEMANDATE AND PRESERVE THE ACT
The preceding discussion demonstrates thatthe individual mandate provides an essential coun-
22
terbalance to what would otherwise be substantialcosts to market participants including health insur-ance companies, consumers of insurance, hospitals,and drug manufacturers. As this Court has noted,when courts evaluate remedies, including sever-ability, when part of a statute is unconstitutional,they must, among other considerations, “restrain[themselves] from ‘rewrit[ing] [a] law to conform it toconstitutional requirements’ even as we strive to sal-vage it.” Ayotte, 546 U.S. at 329 (quoting Virginia v.Am. Booksellers Ass’n, 484 U.S. 383, 397 (1988))(second alteration in original); see also Florida, 780F. Supp. 2d at 1303 (quoting Ayotte).
Thus, “where” – as here – “line-drawing is in-herently complex,” engaging in a provision-by-provision analysis to invalidate many of the Act’sprovisions but perhaps not others “may call for a ‘farmore serious invasion of the legislative domain’ thanwe ought to undertake.” Ayotte, 546 U.S. at 330(quoting United States v. Nat’l Treasury EmployeesUnion, 513 U.S. 454, 479 n.26 (1995)). The DistrictCourt understood that this principle requires theACA to be invalidated in its entirety once the indi-vidual mandate has been adjudged unconstitutional.Florida, 780 F. Supp. 2d at 1303-05. As that courtcorrectly observed, without the individual mandate,the Act
cannot function as originally designed.There are simply too many movingparts in the Act and too many provi-sions dependent (directly and indirectly)on the individual mandate and otherhealth insurance provisions – which, asnoted, were the chief engines that drove
23
the entire legislative effort – for me totry and dissect out the proper from theimproper, and the able-to-stand-alonefrom the unable-to-stand-alone. Such aquasi-legislative undertaking would beparticularly inappropriate in light of thefact that any statute that might con-ceivably be left over after this analysisis complete would plainly not serveCongress’ main purpose and primaryobjective in passing the Act.
Id. at 1304-05.
Amici’s economic analysis reinforces this con-clusion by demonstrating the economic reality thatthe individual mandate is intertwined with a host ofACA provisions, not simply the core insurance re-forms. As a result, the mandate cannot be severedfrom the remainder of the ACA.
CONCLUSION
For the foregoing reasons, if the Court upholdsthe Eleventh Circuit’s judgment that the individualmandate is unconstitutional, then the decision as toseverability should be reversed.
24
Respectfully submitted,
Steven G. BradburySteven A. Engel
Counsel of RecordMichael H. ParkElisa T. WiygulDECHERT LLP1775 I Street, NWWashington, DC 20006(202) [email protected]
January 6, 2012 Counsel for Amici Curiae
APPENDIX
Appendix
LIST OF AMICI
Douglas Holtz-EakinAmerican Action ForumFormer Director, Congressional Budget Office
Edward C. PrescottArizona State UniversityNobel Prize Winner in Economics
Vernon L. SmithChapman University, George Mason University,
Mercatus CenterNobel Prize Winner in Economics
June O’NeillBaruch College, CUNYFormer Director, Congressional Budget Office
Arthur B. LafferLaffer AssociatesFormer Chief Economist, Office of
Management and Budget
Larry LindseyThe Lindsey GroupFormer Director, National Economic Council
Douglas K. AdieOhio University
William AlbrechtUniversity of Iowa
Scott W. AltasStanford Medical School
2a
Appendix
Charles BairdCalifornia State University, East Bay
Lawrence J. BelcherTaylor University
Sanjai BhagatUniversity of Colorado
Michael BondUniversity of Arizona
Carlos BonillaThe Washington Group
Robert A. BookAmerican Action Forum
Ike BrannonAmerican Action Forum
Edgar K. BrowningTexas A&M University
Lawrence BrunnerCentral Michigan University
Richard V. BurkhauserCornell University
Charles W. CalomirisColumbia University
Cameron SmithAmerican Action Forum
3a
Appendix
Richard J. CebulaJacksonville Univesity
R. Morris CoatsNicholls State University
John P. CochranMetropolitan State College of Denver
John H. CochraneUniversity of Chicago
Robert CollingeUniversity of Texas at San Antonio
Peter F. ColwellUniversity of Illinois Urbana-Champaign
Michael ConnollyUniversity of Miami
Kathleen B. CooperSouthern Methodist University
Mike CosgroveUniversity of Dallas
Eleanor D. CraigUniversity of Delaware
Nicole V. CrainLafayette College
Carl DahlmanRAND Corp.
4a
Appendix
Coldwell Daniel IIIUniversity of Memphis
Antony DaviesDuquesne University
Phoebus J. DhrymesColumbia University
Floyd H. DuncanVirginia Military Institute
Francis J. EganTrinity College
Stephen J. EntinInstitute for Research on the Economics of Taxation
Richard E. EricsonEast Carolina University
Dorla A. EvansUniversity of Alabama in Huntsville
Fred FoldvarySanta Clara University
Douglas C. FrechtlingThe George Washington University
Luke FroebVanderbilt University
Diana Furchtgott-RothManhattan Institute
5a
Appendix
Richard J. GrantLipscomb University
William R. HartMiami University (Ohio)
Joseph H. HaslagUniversity of Missouri
Kevin HassettEconomic Policy Studies,
American Enterprise Institute
David R. HendersonHoover Institution
Arlene HolenTechnology Policy Institute
C. Thomas HowardUniversity of Denver
Paul HowardManhattan Institute
James L. HuffmanLewis & Clark Law School
Joseph M. JadlowOklahoma State University
David L. KendallThe University of Virginia’s College at Wise
6a
Appendix
Norman B. LeftonSouthern Illinois University Edwardsville
Thomas E. LehmanIndiana Wesleyan University
Phil I. LevyAmerican Enterprise Institute
Donald L. LuskinTrend Macrolytics LLC
R. Ashley LymanUniversity of Idaho
Glenn MacDonaldWashington University in St. Louis
Henry G. ManneGeorge Mason University
Michael L. MarlowCal PolySan Luis Obispo
Timothy MathewsKennesaw State University
Merrill MatthewsInstitute for Policy Innovation
Roger MeinersUniversity of Texas - Arlington
Allan MeltzerCarnegie Mellon University
7a
Appendix
Eugenio J. MiraveteUniversity of Texas at Austin
James MoncurHawaii at Manoa
Nicole FisherHealth Systems Innovation Network
Robert D. NiehausRobert D. NiehausInc.
James O’NeillUniversity of Delaware
Donald J. OswaldCalifornia State University Bakersfield
Stephen T. ParenteUniversity of Minnesota
R. L. PromboinUniversity of Maryland University College
Richard W. RahnInstitute for Global Economic Growth
Michael J. RamletAmerican Action Forum
R. David RansonH. C. Wainwright & Co. Economics Inc.
Jon ReismanUniversity of Maine at Machias
8a
Appendix
Christine P. RiesGeorgia Institute of Technology
Nancy H. RobertsArizona State University
Larry L. RossUniversity of Alaska, Anchorage
Timothy P. RothThe University of Texas at El Paso
Paul H. RubinEmory University
Anthony B. SandersGeorge Mason University
Thomas SavingTexas A&M University
Richard T. SeldenThe University of Virginia
Alan C. ShapiroUniversity of Southern California
Mark H. ShowalterBrigham Young University
James F. SmithEconForecaster, LLC
Richard L. SmithUniversity of California, Riverside
9a
Appendix
Lawrence SouthwickUniversity of Buffalo
Robert TamuraClemson University
John A. TatomIndiana State University
Stephen A. Tolbert, Jr.Montgomery County Community College
William N. TrumbullWest Virginia University
Larry Van HornVanderbilt University
Richard VedderOhio University, American Enterprise Institute
Brian S. WesburyFirst Trust Portfolios, LP
Gary WolframHillsdale College
Joseph ZoricFranciscan University of Steubenville
Benjamin ZycherAmerican Enterprise Institute, Pacific
Research Institute
11a
Appendix
This analysis was completed using theHEPSS-ARCOLA economic forecasting model, whichis designed to estimate the impact of health policyproposals at federal and state levels. The model pre-dicts individual adult responses to proposed policychanges and generalizes to the U.S. population withrespect to health insurance coverage and the finan-cial impact of the proposed changes.
The model is built on a foundation of datasources including claims data from several nation-wide employers, the Medical Expenditure Panel Sur-vey Household Component (MEPS-HC), and theMedical Expenditure Panel Survey Insurance Com-ponent (MEPS-IC).
This model was first used by the Office of theAssistant Secretary (OASPE) of the Department ofHealth and Human Services (DHHS) to simulate theeffect of the Medicare Modernization Act of 2003(MMA) on how quickly and how many consumerswould adopt high-deductible health plans in the in-dividual health insurance market. See Roger Feld-man, Stephen T. Parente, Jean Abraham, et al.,Health Savings Accounts: Early Estimates Of Na-tional Take-Up, 24 Health Affairs 1582 (Nov./Dec.2005); Stephen T. Parente & Roger Feldman, Con-tinuation of Research on Consumer Directed HealthPlans: HSA Simulation Model Refinement, FinalTechnical Report for DHHS ContractHHSP23320054301ER, i (Jan. 21, 2007). The modelwas later refined to incorporate the effect of priorhealth status on health plan choice in order to pre-dict enrollment more accurately. The current modeluses insurance expenditures from actual health in-
12a
Appendix
surance claims data and Medicaid to estimate thestate and federal impact of health policy changes.
The data used for this analysis are the Medi-cal Expenditure Panel Survey (MEPS), ehealth.com,the 2011 Kaiser survey of health plans, and propri-etary commercial insurance claims as well as benefitdesign information from several employers.
By inputting updated premium data into themodel and then running the model through an itera-tive process, amici were able to estimate, for a ten-year projection period, the response of individuals tonew health insurance choices, premium rates, planparticipation, and other financial information in thepresence of the ACA’s various provisions. See alsoDouglas Holtz-Eakin, Stephen T. Parente & MichaelJ. Ramlet, The Economic Implications of Severing theIndividual Mandate, American Action Forum, Jan. 5,2012, http://bit.ly/EIoStIM.
