By: Dan Mangan
July 22, 2014
The intellectual godfather of a serious court challenge to Obamacare says that if the effort continues to be successful tens of millions of people would be “free” from the law’s individual and employer mandates.
Leading critic of the act, Michael Cannon, revealed that eye-popping number Monday, ahead of Tuesday’s potentially crippling blow to the health-care reform law.
In Tuesday’s 2-1 ruling, a judicial panel said subsidies to buy health insurance coverage can only be granted to people who purchased insurance on an Obamacare exchange run by an individual state or the District of Columbia—not on the federally run exchange.
The Obama Administration is likely to appeal the decision by the U.S. Court of Appeals for the District of Columbia Circuit, which does not have an immediate effect on the law.
However, by Cannon’s calculations if the decision is upheld, more than 250,000 firms in those states, which have about 57 million workers, also would not be subject to the employer mandate being phased in starting next year. That rule, which hinges on the availability of subsidies on Obamacare exchanges, will compel employers with 50 or more full-time workers to offer affordable health insurance or pay a fine.
And a total of about 8.3 million individuals will be “free” of the act’s rule that they have health insurance or pay a fine equal to as much as 1 percent of their taxable income, Cannon said. He added that the number could be a conservative estimate.
The number includes people who were previously uninsured before the exchanges opened last fall and whose options for insurance on the exchanges would not be considered affordable under the law without subsidy assistance.
“Such a ruling would free nearly 1 million Floridians and more than 1.5 million Texans from the individual-mandate tax,” Cannon wrote on his Forbes.com blog, Darwin’s Fool. “In 2016, it would free families of four earning as little as $24,000 per year from an illegal tax of $2,085.”
Cannon did not add together his estimates for how many people would be “free” of the employer and individual mandates because there is some overlap between the two groups. But he contrasted the tens of millions of people who would be free of the fines or tax penalties from the mandates with the 4.7 million people who currently receive subsidies for their HealthCare.gov-purchased plans in the 36 states.
“The winners under such a ruling would outnumber the losers by more than 10-to-1,” he wrote in the blog.
Even as he released those numbers, Cannon acknowledged to CNBC.com the long odds facing the court challenge attacking the legality of billions of dollars in subsidies.
“My standard response is, the cases against the [subsidies] are iron-clad, which means the odds for our success are a solid 20 percent,” joked Cannon, director of health policy studies at the libertarian Cato Institute.
“Having the law on your side doesn’t always mean you’re going to win,” Cannon said. “Courts are generally reluctant to rule against government agencies.”
“But I’m hopeful. And while I’m not confident the courts will rule our way, I’m confident about the merits of this case,” he said.
Cannon and Case Western Reserve University law professor Jonathan Adler are the primary authors of the claim that the Affordable Care Act only allows federal tax credits to be issued to people who buy insurance plans on an exchange established by a state—not on one run by the federal government. People received those subsidies if they had low or moderate incomes.
Just 14 states and the District of Columbia set up their own exchanges, and the legality of the subsidies on those markets is not being challenged.
Four lawsuits challenging the legality of the HealthCare.gov subsidies that were authorized by an IRS rule have been filed in different federal courts.
Cannon, Adler and their allies were heartened this past spring when two of three judges on a panel of the federal appeals court in Washington, D.C., appeared sympathetic to arguments based on their claims.
The case they heard, entitled Halbig v. Burwell, could become the first one of its kind to be decided at the appellate level, as early as Tuesday. The case’s outcome may play a decisive role in determining whether the issue is ever heard by the U.S. Supreme Court.
Critics of Cannon’s argument say that it misreads the overall intent of Obamacare, which they claim is to offer affordable health insurance to people around the U.S., regardless of whether they buy insurance on a state-run exchange, or the federal exchange.
Last week, two analyses underscored the potential effects of the high court ruling against the legality of the subsidies. The consultancy Avalere Health estimated that people who currently receive subsidies in the affected states would see their premium rates rise an average of 76 percent. And the Robert Wood Johnson Foundation and the Urban Institute said that by 2016, about 7.3 million enrollees would lose about $36 billion in subsidies.
In his Forbes.com blog post Monday, Cannon wrote that “a victory for the Halbig plaintiffs would not increase anyone’s premiums.”
“What it would do is prevent the IRS from shifting the burden of those premiums from enrollees to taxpayers. Premiums from federal-Exchange enrollees would not rise, but those enrollees would face the full cost of their ‘ObamaCare’ plans,” Cannon wrote.
(UPDATED: The contents of this story were updated to reflect the decision by the U.S. Court of Appeals for the District of Columbia Circuit.)
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