Fulfilling the Promise of Obamacare Repeal

By Chris Jacobs
For years, the American people have suffered from the ill effects of Obamacares federal
intrusions into the health care system. Millions of Americans received cancellation notices
telling them that the plans they had, and liked, would disappeara direct violation of President
Obamas repeated promises. 1 Insurance premiums have skyrocketed, rising nearly 50 percent in
2014, followed by another increase of over 20 percent this year. 2 Insurance options have
disappeared, with Americans in approximately one-third of all U.S. counties having the choice
of only one insurer in 2017. 3
But as the 115th Congress begins, the new Republican majority, and President-elect Donald
Trump, have pledged to bring the American people desperately needed relief, by fulfilling their
long-stated promise to repeal Obamacare. Congressional leaders have stated their intention to
bring forward legislation that repeals key portions of Obamacare using budget reconciliation
procedures. Such legislation would likely resemble the reconciliation bill that the prior 114th
Congress passed, but President Obama vetoed on January 8, 2016.
That legislation, H.R. 3762 of the last Congress, repealed funding for Obamacares new
entitlementsMedicaid expansion to the able-bodied, and coverage subsidies for individuals of
low and moderate incomes purchasing coverage on insurance Exchangeseffective January 1,
2018, approximately two years after enactment. It repealed all of the laws tax increases
including the tax penalties associated with the individual and employer mandatesbeginning
Policy Notifications and Current Status, by State, Associated Press December 26, 2013,
http://finance.yahoo.com/news/policy-notifications-current-status-state-204701399.html; Angie Drobnic Holan, Lie
of the Year: If You Like Your Health Care Plan, You Can Keep It, Politifact December 12, 2013,
http://www.politifact.com/truth-o-meter/article/2013/dec/12/lie-year-if-you-like-your-health-care-plan-keep-it/.
2
Drew Gonshorowski, How Will You Fare in the Obamacare Exchanges? Heritage Foundation Issue Brief No.
4068, October 16, 2013, http://www.heritage.org/research/reports/2013/10/enrollment-in-obamacare-exchangeshow-will-your-health-insurance-fare; Department of Health and Human Services, Health Plan Choice and
Premiums in the 2017 Health Insurance Marketplace, ASPE Research Brief, October 24, 2016,
https://aspe.hhs.gov/sites/default/files/pdf/212721/2017MarketplaceLandscapeBrief.pdf.
3
Cynthia Cox and Ashley Semanskee, Preliminary Data on Insurer Exits and Entrants in 2017 Affordable Care Act
Marketplaces, Kaiser Family Foundation, August 28, 2016, http://kff.org/health-reform/issue-brief/preliminarydata-on-insurer-exits-and-entrants-in-2017-affordable-care-act-marketplaces/.
1

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January 1, 2016, effectively coinciding with the date of enactment. The bill also included other
important provisions, restricting federal Medicaid payments to certain providers. 4
Critics have argued that, having voted for this legislation once under President Obama, Members
of Congress should not pass this bill again, sending it to President Trumps desk for immediate
signature.5 These critics argue that Congress cannot repeal Obamacares costly insurance
regulations under the special budget reconciliation procedures, which require all provisions in
reconciliation legislation to have a significant budgetary impact. The critics fear that passing
such legislation would effectively nullify Obamacares individual and employer mandates
immediately, and its subsidies eventually, while keeping in place its costly insurance regulations
that have significantly raised premiums. They believe that these steps would exacerbate adverse
selectiona scenario whereby only sick individuals purchase health insurance coveragedestabilize insurance markets, and lead more insurers to drop out of insurance Exchanges
altogether.
Those concerns, while legitimate, are misplaced on several fronts. First, Congress has not yet
litigated whether or not some or all of the major Obamacare insurance regulations are budgetary
in nature, and can be considered as part of reconciliation legislation. Second, Congress can and
should take steps to modify last years reconciliation bill in ways that will stabilize insurance
markets in the near-term, and create a transition to alternative legislation Congress constructs.
Third, the incoming Trump Administration has significant regulatory powers within its purview,
which can minimize the adverse selection effects critics fear from repeal legislation, and modify
the federal mandates that have driven up premiums in recent years.
While not perfect, and less ideal than starting from scratch, last years reconciliation legislation
represents a solid base from which to construct a legislative and regulatory framework for
repealing Obamacare. It also represents the fastest approach for Congress to deliver on the
promise it has made to its constituents for over six years: Unwinding an unaffordable and
unworkable health care law.
What Congress Should Do
Last years reconciliation measure provides a good starting point for Congress when drafting
repeal legislation to consider this year. However, Congress should attempt both to expand and
revise the measure. These efforts would both mitigate against any adverse selection concerns,
and stabilize insurance markets while Congress considers alternative legislation.
Expand Reconciliation to Insurance Regulations:
Critics have claimed that
Obamacares major insurance regulations were not altered in H.R. 3762; they could not be
altered in a reconciliation bill taken up in 2017, either, due to procedural restrictions inherent in
the budget reconciliation process.6 Such a definitive assertion is at best premature. Observers
4

Section 206 of H.R. 3762 had the effect of preventing Medicaid plans from providing reimbursements to certain
providers, including Planned Parenthood.
5
Joe Antos and Jim Capretta, The Problems with Repeal and Delay, Health Affairs January 3, 2017,
http://healthaffairs.org/blog/2017/01/03/the-problems-with-repeal-and-delay/.
6
Ibid.

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have noted that Congress chose not to litigate the issue of whether and what restrictions are
budgetary in nature, and therefore eligible for repeal in reconciliation legislation, when
considering H.R. 3762 in the fall of 2015.7
However, Congress can, and should, choose to litigate those issues with the Senate
parliamentarian now. Rulings by the Senate parliamentarian will guide lawmakers as they
determine which provisions of repeal legislation meet budget reconciliation guidelines, and can
therefore be approved using a simple, 51-vote majority without being subject to the 60-vote
threshold used for other legislation subject to a filibuster.
The Congressional Budget Office, think-tanks, and other actuarial organizations have produced
estimates showing the significant costs of many of Obamacares insurance mandatesincluding
requirements related to pre-existing conditions; essential health benefits; community rating
requirements; actuarial value; medical loss ratios; preventive care coverage requirements; and
other major mandates. The Obama Administration itself has produced cost estimates for several
of the laws mandatesand argued twice before the Supreme Court that its regulatory mandates
are critical to the laws structure. 8
Congress can and should expand the scope of last years reconciliation bill to include the major
insurance regulations. Doing so would be consistent with both the existing scoring estimates and
past practice under budget reconciliation. Moreover, expanding the scope of repeal to include the
largest insurance mandates would mitigate against adverse selection effects that might result if
Congress repealed the individual mandate while leaving the major insurance regulations in place.
Freeze Enrollment in Entitlements:
Consistent with the transition period provided for in
the 2015 reconciliation legislation, any repeal measure should also include steps to freeze
enrollment in the laws new entitlements. Such actions would be particularly pertinent to
Obamacares massive expansion of Medicaidthe source of most of the laws spending, and the
vast majority of its coverage expansions. 9
Research indicates that past states that froze enrollment in Medicaid allowed the vast majority of
enrollees to transition off of the program, and into work, within a short period of time.10
Moreover, another study published by the National Bureau of Economic Research concluded that
Tennessees decision to roll back its unsustainable Medicaid expansion in 2005 led to large
increases in [the] labor supply and increases in employment, as individuals dis-enrolled from
Paul Winfree and Brian Blase, How to Repeal Obamacare: A Roadmap for the GOP, Politico November 11,
2016, http://www.politico.com/agenda/story/2016/11/repeal-obamacare-roadmap-republicans-000230.
8
Ibid.
9
Congressional Budget Office, baseline estimates for federal subsidies for health insurance, March 2016,
https://www.cbo.gov/sites/default/files/recurringdata/51298-2016-03-healthinsurance.pdf,
Table 3, p. 5; Edmund Haislmaier and Drew Gonshorowski, 2015 Health Insurance Enrollment: Net Increase of 4.8
Million, Trends Slowing, Heritage Foundation Issue Brief No. 4620, October 31, 2016, http://thfreports.s3.amazonaws.com/2016/IB4620.pdf.
10
Jonathan Ingram, Nic Horton, and Josh Archambault, Welfare to Work: How States Can Unwind Obamacare
Expansion and Restore the Working Class, Forbes December 3, 2014,
http://www.forbes.com/sites/theapothecary/2014/12/03/welfare-to-work-how-states-can-unwind-obamacareexpansion-and-restore-the-working-class/#455cad6923ec.
7

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Medicaid looked forand obtainedemployment, and employer-sponsored health insurance.11
Freezing enrollment would hold existing beneficiaries harmless, while beginning to transition
away from Obamacares unsustainable levels of spendingand encouraging economic activity
and job growth.
Beginning this year, states that expanded Medicaid under Obamacare will also face added fiscal
burdens, as they must finance a portion (in 2017, 5 percent) of the cost of coverage for the first
time. Even Democratic state legislators in blue states like Oregon and New Mexico have raised
concerns about what the cost of this massive expansion of Medicaid to the able-bodied will do to
other important state programs targeting the most vulnerable of our citizens. 12 For all these
reasons, Congress should insert language into the reconciliation freezing enrollment upon
enactmentor perhaps shortly after enactment, to allow expansion states time to submit
amendments to their existing state plans reflecting this legislative change.
Congress should also explore freezing enrollment in the laws program of Exchange subsidies. In
the spring of 2015, as the Supreme Court considered the case of King v. Burwellwhich
affected subsidies provided to individuals in states using the federal insurance Exchange,
healthcare.govmultiple Members of Congress introduced legislation that would have frozen
enrollment. These bills would have allowed individuals who qualified for subsidies prior to the
Courts ruling to continue to receive them for a transitional period of time, but made other
individuals ineligible for such subsidies.13
Though the Supreme Court ultimately upheld the subsidies in King v. Burwell, ruling that the
words an Exchange established by the State also referred to an Exchange run by the federal
government, Congress could utilize a similar regime in the reconciliation bill with respect to
insurance subsidiesthat is, freezing eligibility and enrollment effective the date of the bills
enactment.14 However, Congress should only act to freeze eligibility for insurance subsidies if it
believes doing so would not cause existing insurance market risk pools to deteriorate during the
transition period.
Appropriate Cost-Sharing Subsidies:
Any repeal measure should include a temporary,
time-limited appropriation for cost-sharing subsidies currently in dispute. Those subsidies
reimburse insurers for the expense of cost-sharing reductionslower deductibles and copaymentsprovided to certain low-income enrollees under Obamacare. In the case of House v.
Burwell, the House of Representatives has argued that the text of Obamacare nowhere provides
an explicit appropriation for the cost-sharing subsidies, and that the Obama Administration
violated the Constitution by funding this spending without an express appropriation.
Craig Garthwaite, Tal Gross, and Matthew Notowidigdo, Public Health Insurance, Labor Supply, and
Employment Lock, National Bureau of Economic Research Working Paper 19220, July 2013,
http://www.nber.org/papers/w19220.
12
Christina Cassidy, Medicaid Enrollment Surges, Stirs Worry about State Budgets, Associated Press July 19,
2015, http://www.bigstory.ap.org/article/c158e3b3ad50458b8d6f8f9228d02948/medicaid-enrollment-surges-stirsworry-about-state-budgets.
13
See for instance Section 4 of Winding Down Obamacare Act, S. 673 (114 th Congress), by Sen. Ben Sasse (R-NE),
and Section 4(b) of Preserving Freedom and Choice in Health Care Act, S. 2016 (114 th Congress), by Sen. Ron
Johnson (R-WI).
14
King v. Burwell, 576 U.S. __ (2015).
11

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On May 12, 2016, United States District Court Judge Rosemary Collyer agreed with the Houses
position, imposing an injunction (stayed pending appeal) prohibiting the Administration from
appropriating funds for the cost-sharing subsidies.15 The Court of Appeals for the District of
Columbia is currently considering the Obama Administrations appeal of Judge Collyers ruling,
with further actions on hold until the new Administration takes office.
Some insurers argue that, should the incoming Trump Administration withdraw the cost-sharing
subsidies, they have the right to terminate their plans from the Exchanges immediately. The
arguments that insurers can withdraw from the markets in 2017 lack merit.16 Furthermore,
analysts have warned for months that an incoming Administration could withdraw the costsharing subsidies unilaterally upon taking office. 17 Insurers saw fit to ignore those warnings, and
signed up to offer 2017 coverage knowing full well that the cost-sharing subsidies could
disappear on short notice, through either court rulings or regulatory action by a new
Administration.
However, to provide certainty, Congress should appropriate funds for the cost-sharing subsidies
as part of the repeal billbut only for the length of the transition period provided for in that
measure. The Trump Administration should encourage Congress to appropriate funds for the
transition period. Once Congress does so, the Trump Administrations Justice Department can
move to dismiss the Obama Administrations appeal of the case against the House of
Representatives, conceding the point that the executive never had authority to appropriate funds
for cost-sharing subsidies absent express direction by Congress.
Utilize the Congressional Review Act:
The election outcome notwithstanding, President
Obamas outgoing Administration continues to use the regulatory process to attempt to box in
his successor. On December 22, 2016, the Administration published a Notice of Benefit and
Payment Parameters for the 2018 plan year. 18 In doing so, the Administration specifically waived
provisions of the Congressional Review Act, which generally requires a 60-day delayed effective
date for major rules. The Department of Health and Human Services (HHS) claimed that such a
delay was impracticable for good cause reasons.19 The 2018 Notice of Benefit and Payment
Parameters will therefore take effect 30 days following its display, on January 17, 2017during
15

United States District Court for the District of Columbia, Civil Action No. 14-1967, House v. Burwell, ruling by
Judge Rosemary Collyer, May 12, 2016, https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2014cv1967-73.
16
The contract between CMS and insurers on the federal Exchange notes that insurers developed their products
based on the assumption that cost-sharing reductions will be available to qualifying enrollees, and can withdraw if
they are not. However, under the statute, enrollees will always qualify for the cost-sharing reductionsthat is not in
dispute. The House v. Burwell case instead involves whether or not insurers will receive federal reimbursements for
providing the cost-sharing reductions to enrollees. This clause was poorly drafted by insurers counsel, and therefore
has no applicability to House v. Burwell; insurers have no ability to withdraw from Exchanges in 2017, even if the
Trump Administration stops reimbursing insurers. See https://www.cms.gov/CCIIO/Resources/Regulations-andGuidance/Downloads/Plan-Year-2017-QHP-Issuer-Agreement.pdf, V.b, Termination, p. 6.
17
Chris Jacobs, What if the Next President Cuts Off Obamacare Subsidies for Insurers? Wall Street Journal May
5, 2016, http://blogs.wsj.com/washwire/2016/05/05/what-if-the-next-president-cuts-off-obamacare-subsidies/.
18
Department of Health and Human Services, interim final rule regarding 2018 Notice of Benefit and Payment
Parameters, Federal Register December 22, 2016, https://www.gpo.gov/fdsys/pkg/FR-2016-12-22/pdf/201630433.pdf.
19
Ibid., pp. 94159-60.

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President Obamas last week in office. As a result, President Trump will be unable simply to
revoke this regulation unilaterally upon taking office.
However, the Congressional Review Act does provide a vehicle for Congress, in concert with a
President Trump, to take action revoking the newest Obamacare regulation. Specifically, the Act
provides that a resolution of disapproval, passed by both houses of Congress, will have the effect
of nullifying the rule or administrative action proposed.20 Of particular import, the Congressional
Review Act provides for expedited consideration of resolutions of disapproval in the Senate;
those limits on debate preclude filibusters, meaning that resolutions of disapproval require a
simple, 51-vote majority to pass, rather than the usual 60 votes for legislation subject to a
filibuster.
Congress should explore using the Congressional Review Act to pass a resolution of disapproval
nullifying the Obama Administrations last-minute 2018 Notice of Benefit and Payment
Parameters. Regardless of whether or not Congress strikes down this last-minute rule, the Trump
Administration should act expeditiouslyincluding through use of the good cause exemption
the Obama Administration cited to rush through its own regulations last monthto provide
needed relief to consumers.
What the Administration Should Do
The Trump Administration can also play its part in bringing about the promise of repeal, by
acting in concert with Congress to undo the effects of Obamacares major insurance mandates.
Consistent with the actions Congress should take listed above, the incoming Administration
should immediately use flexibility to provide relief from Obamacares regulatory regime.
Whether through a new 2018 Notice of Benefit and Payment Parameters, a series of interim final
regulations, or both, these regulations would provide a vehicle for incorporating many of the
changes needed to undo Obamacares harmful effects, including those listed below.
While the Administration cannot unilaterally change the lawsuch actions lie solely within the
purview of Congressit can and should take steps to soften the impact of existing mandates, and
provide maximum flexibility wherever possible. These steps would stabilize insurance markets
during the period following repeal, and provide for an orderly transition to an alternative regime.
Limit Open Enrollment:
Obamacare gives the Secretary of HHS the authority to require an
Exchange to provide forannual open enrollment periods, as determined by the Secretary for
calendar years after the initial enrollment period. 21 The law requires insurers to accept all
applicants without regard to pre-existing conditions or health statusin industry parlance,
guaranteed issuebut only within certain limits. Specifically, health insurers may restrict
enrollment in coverage described in such subsection [i.e., guaranteed issue coverage] to open or

5 U.S.C. 802. For more information, see Maeve Carey, Alissa Dolan, and Christopher Davis, The Congressional
Review Act: Frequently Asked Questions, Congressional Research Service Report R43992, November 17, 2016,
https://fas.org/sgp/crs/misc/R43992.pdf.
21
42 U.S.C. 13031(c)(6)(B), as codified by Section 1311(c)(6)(B) of Patient Protection and Affordable Care Act,
P.L. 111-148.
20

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special enrollment periods. 22 In other words, the requirement that insurers accept all applicants
only applies during open enrollment periodsand the HHS Secretary has the sole power to
determine when, and for how long, those open enrollment periods run.
The existing Code of Federal Regulations states that for the 2018 benefit year, open enrollment
for individual health insurance will run from November 1, 2017 through January 31, 2018the
exact same three-month period as the 2016 and 2017 open enrollment periods.23 The incoming
Administration canand shouldissue new regulations limiting those open enrollment periods
to a much narrower window, to prevent individuals from gaming the system and enrolling only
after they incur costly medical conditions.
At minimum, it appears eminently reasonable for the new Administration to shorten the open
enrollment window down to 30 daysa significant reduction from 2016 and 2017, which saw
open enrollment last for one-quarter of the year. If logistical obstacles can be overcomei.e.,
could Exchanges process applicants in a shorter period?the Administration could restrict the
open enrollment period even further, to a period of perhaps a couple of weeks. Other observers
have suggested tying open enrollment to a period surrounding an individuals birth date, thus
preventing a surge of applicants at one particular point in the year.
Narrowing the length of open enrollment periods, coupled with restrictions on special enrollment
periods outlined below, will provide a more controlled and contained environment for insurers to
issue policies. Limiting enrollment periods will mitigate against an insurance market that
requires carriers to issue policies without imposing financial penalties on individuals who fail to
purchase insuranceindeed, will mitigate against the adverse selection insurers suffer from
currently, even with the individual mandate in full effect. Because Obamacare gives the
Secretary of HHS extremely broad authority to define open enrollment periodsother than
stating these must occur annually, the statute includes few prescriptions on administrative
authoritythe Trump Administration should use this authority to maximum effect.
Restrict Special Enrollment Periods:
Insurers have raised numerous complaints about
individuals using special periods outside open enrollment to obtain coverage, incur large medical
claims, and then drop that coverage upon regaining health. Early in 2016, Blue Cross Blue Shield
calculated that special enrollment period customers were 55 percent more costly than those
enrolling during the usual annual enrollment period. Likewise, Aetna found that one-quarter of
its entire enrollment came from these special enrollment periods, and that said enrollees
remained on the rolls for an average of fewer than four monthsan indication that many only
enrolled in the first place to obtain coverage for a specific medical condition or ailment. 24
Even as insurers demonstrate that individuals have abused special enrollment periods to incur
costly medical bills and subsequently cancel coverage, the Obama Administration actually
exacerbated the problem its last-minute 2018 Notice of Benefit and Payment Parameters. That
22

Section 2702(b)(1) of the Public Health Service Act, 42 U.S.C. 300gg-1(b)(1), as modified by Section 1201(2)(A)
of PPACA.
23
45 C.F.R. 155.410(e)(2).
24
Paul Demko, Gaming Obamacare, Politico January 12, 2016, http://www.politico.com/story/2016/01/gamingobamacare-insurance-health-care-217598.

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rule expanded the number of special enrollment periods, codifying an additional five exemptions
allowing eligible individuals to qualify for coverage outside of open enrollment periods.25
That said, the Obama Administration has taken some steps to restrict abuse of special enrollment
periods. In June 2016, it implemented a process announced in February 2016, which requires
documentation from applicants seeking special enrollment periods for the most common
conditionsa move, loss of coverage, marriage, birth, or adoption. 26 The Centers for Medicare
and Medicaid Services (CMS) claims this documentation requirement reduced the number of
special enrollment period applicants by 20 percent.27 However, a separate effort to require
verification of special enrollment period eligibility prior to enrollment will not begin until this
coming June, with results only coming in spring 2018.28
With respect to special enrollments, the incoming Administration should 1) eliminate all special
enrollment periods, other than those required under existing law; and/or 2) accelerate the process
of pre-enrollment verification for all special enrollment periods. 29
Use Exchange User Fees to Lower Premiums:
In its Notice of Benefit Parameters, the
Obama Administration has annually imposed a 3.5 percent surcharge, dubbed an Exchange user
fee, on issuers offering coverage using healthcare.gov, the federally-run Exchange, which those
insurers then pass on to consumers. The 2018 version of the document, released December 22,
specifically suggested that the 3.5 percent fee paid by insurers (and ultimately by consumers)
now exceeds the costs associated with running the federal Exchange:
We have received feedback suggesting that the FFEs [federally-facilitated Exchanges]
would be able to increase enrollment by allocating more funds to outreach and education,
a benefit to both consumers and issuers. We sought comment on how much funding to
devote to outreach and education, and on whether HHS should expressly designate a
portion or amount of the FFE user fee to be allocated directly to outreach and enrollment
activities, recognizing the need for HHS to continue to adequately fund other critical
Exchange operations, such as the call center, healthcare.gov, and eligibility and
enrollment activities.30
Some commenters regarding the Exchange user fee proposal specifically requested that the
Exchange user fee rate should decrease over time. HHS rejected this approach for 2018. It did
note that we do anticipate gaining economies of scale from functions with fixed costs, and if so,

25

2018 Notice of Benefit and Payment Parameters, pp. 94127-31.

Centers for Medicare and Medicaid Services, Fact Sheet: Special Enrollment Confirmation Process, February
24, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-0224.html.
27
Centers for Medicare and Medicaid Services, Pre-Enrollment Verification for Special Enrollment Periods,
https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/pre-enrollment-sep-fact-sheet-final.pdf.
28
Ibid.
29
42 U.S.C. 13031(c)(6)(C), as codified by Section 1311(c)(6)(C) of PPACA, requires the Secretary to establish
special enrollment periods for individual coverage as specified by the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) for group coverage, codified at 26 U.S.C. 9801.
30
2018 Notice of Benefit and Payment Parameters, p. 94138.
26

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may consider reducing the FFE user fee based on increased enrollment and premiums in the
future.31
Upon taking office, the Trump Administration should act immediately to ensure that the
Exchange user fee funds essential Exchange operations only. With the Exchanges now in their
fourth year of operation, HHS will not need to spend as much on technological infrastructure as
the Department did while standing up the Exchangeand should not, as the Obama
Administration suggested, spend the difference on new slush funds designed to promote
enrollment outreach.
Because the Exchange user fee is based on a percentage of premium, this years 20 percent spike
in premiums for Obamacare plans has significantly increased funding for the federal Exchange
as it is.32 Moreover, the vast majority of Exchange participants84 percent, per the most recent
enrollee datareceive federal subsidies for their health insurance premiums. 33 Because those
federal subsidies directly relate to premium costs, federal taxpayersand not enrollees
themselvesare in many cases paying for any additional, and unnecessary, spending undertaken
by the federal Exchange.
To save taxpayers, and to lower premiums for all consumers, the Trump Administration should
take immediate steps to reduce the Exchange user fee to the minimum necessary to support
Exchange operationsand instruct insurers to rebate the difference to consumers in the form of
lower premiums.
Revise Medical Loss Ratio: Obamacare requires insurers to spend a minimum percentage of
premiums on medical claimsa medical loss ratio (MLR).34 Insurers in the individual market
face an 80 percent MLR, while employer plans have an 85 percent requirement. Plans that do not
meet the minimum MLR thresholds must return the difference to beneficiaries in the form of
rebates.
During Obamacares first several years, the MLR requirements have not proven a concern to
insurerslargely because they significantly under-estimated premiums for 2014, 2015, and
2016. In fact, the average MLR for individual market plans skyrocketed from 62.3% in 2011 to
93.3% in 2015.35 Because enrollees proved sicker than anticipated, insurers have paid out a high
percentage of premiums in medical claimsindeed, in some cases, have paid out more in claims
than they received in premium payments from enrollees (i.e., an MLR over 100%).

31

Ibid., p. 94138.
HHS published an average 2017 premium increase for healthcare.gov states of 25 percent, and a median increase
of 16 percent. See HHS, Health Plan Choice and Premiums in 2017, Table 2, p. 6.
33
Centers for Medicare and Medicaid Services, First Half of 2016 Enrollment Snapshot, October 19, 2016,
https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-10-19.html.
34
Section 2718 of the Public Health Service Act, 42 U.S.C. 300gg-18, as revised by PPACA Sections 1001(1) and
10101(f).
35
Centers for Medicare and Medicaid Services, The 80/20 Rule Increases Value for Consumers for Fifth Year in a
Row, November 18, 2016, https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-OtherResources/Downloads/Medical-Loss-Ratio-Annual-Report-2016-11-18-FINAL.pdf.
32

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However, should the Trump Administration desire to provide additional flexibility for insurers, it
could take a more expansive view of activities that improve health care quality, considered
equivalent to medical claims paid under the MLR formula.36 Obamacare required the National
Association of Insurance Commissioners (NAIC) to, by December 31, 2010, establish uniform
definitions of the activities under the MLR, including the definition of activities to improve
health care quality. 37 However, the statute makes those definitions subject to the certification of
the Secretary, and while then-HHS Secretary Kathleen Sebelius accepted the NAIC
recommendations, the new Administration is not necessarily obliged to do so.
The interim final rule regarding the medical loss ratio requirement provides a roadmap for a
Trump Administration to provide regulatory flexibility regarding the MLR, including the
definition of activities that improve health care quality. 38 The new Administration could also
provide relief regarding agents and brokers fees and commissionsan issue HHS
acknowledged in the rule, but did little to ameliorateand taxes and fees paid by insurers due to
regulatory and other requirements.
Reform State Innovation Waivers: Section 1332 of Obamacare provides for state innovation
waivers, which can take effect beginning on or after January 1, 2017. The waivers allow states
to obtain exemptions from most of the laws major insurance requirements, as well as the
employer and individual mandates, to provide an alternative system of health insurance for its
residents. However, the statute requires that any waiver must:
1. Provide coverage that is at least as comprehensive as the coverage defined under the
law, as certified by the Medicare actuary;
2. Provide coverage and cost-sharing protections against excessive out-of-pocket spending
that are at least as affordable as the law;
3. Provide coverage to at least a comparable number of its residents; and
4. Not increase the federal deficit. 39
The Obama Administration released a final rule regarding the process for applying for a Section
1332 waiver in early 2012. 40 However, it did not release information regarding the substance of
the waivers themselves until late 2015and then did so only through informal guidance, not a
formal regulation subject to notice-and-comment.41

36

Section 2718(a)(3) of the Public Health Service Act, 42 U.S.C. 300gg18(a)(3), as revised by PPACA Sections
1001(1) and 10101(f).
37
Section 2718(c) of the Public Health Service Act, 42 U.S.C. 300gg-18(c), as revised by PPACA Sections 1001(1)
and 10101(f).
38
Department of Health and Human Services, interim final rule regarding Implementing Medical Loss Ratio
Requirements under the Patient Protection and Affordable Care Act, Federal Register December 1, 2010,
https://www.gpo.gov/fdsys/pkg/FR-2010-12-01/pdf/2010-29596.pdf.
39
42 U.S.C. 18052(b)(1)(A), as codified by Section 1332(b)(1)(A) of PPACA.
40
Departments of Treasury and Health and Human Services, final rule regarding Application, Review, and
Reporting Process for Waivers for State Innovation, Federal Register February 27, 2012,
https://www.gpo.gov/fdsys/pkg/FR-2012-02-27/pdf/2012-4395.pdf.
41
Departments of Treasury and Health and Human Services, guidance regarding Waivers for State Innovation,
Federal Register December 16, 2015, https://www.gpo.gov/fdsys/pkg/FR-2015-12-16/pdf/2015-31563.pdf.

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The December 2015 guidance exceeded the requirements of the statute in several ways. First, it
said the Administration would not consider potential combined savings from a Section 1332 state
innovation waiver when submitted in conjunction with a Medicaid Section 1115 reform waiver.
In other words, when meeting the deficit neutrality requirement of Section 1332, Medicaid
savings could not be used to offset higher costs associated with Exchange reforms, or vice
versa.42
The guidance also said the Obama Administration would impose additional tests with respect to
coverage and affordabilitynot just examining the impact on state populations as a whole, but
effects on discrete groups of individuals. 43 For instance, the guidance noted that waivers that
reduce the number of people with insurance coverage that provides both an actuarial value equal
to or greater than 60 percent and an out-of-pocket maximum that complies with Section
1302(c)(1) of [Obamacare] would fail the affordability requirement. 44 These new mandates
effectively prohibit states from using waiver programs to expand access to more affordable
catastrophic coverage for individuals.
Due to the four statutory requirements listed above, the Section 1332 waiver program suffers
from inherent shortcomings.45 But because the added restrictions proposed in December 2015
came through informal regulatory guidance, the Trump Administration can and should
immediately withdraw that guidance upon taking office. It should also work immediately to
establish a more flexible rubric for states wishing to utilize Section 1332 waiverswith respect
to both the application process itself and more flexible insurance design that can expand access
and affordability for a states residents.
Withdraw Contraception Mandate:
Among the early benefits of the law taking effect
six months after its enactment was a mandate for preventive care. Specifically, the law requires
first-dollar coverage (i.e., without cost-sharing) of several preventive services, including
womens preventive health screenings.46
On December 20, 2016, the Health Resources and Services Administration (HRSA) released the
most recent womens preventive services guidelines. These guidelines, as before, required that
the full range of female-controlled U.S. Food and Drug Administration approved contraceptive
methods, effective family planning practices, and sterilization procedures be available as part of
contraceptive care.47
The Trump Administration should upon taking office withdraw the HRSA benefit mandates
including the requirement to provide contraception coverage. While these particular mandates
may have a slight impact on premiums, removing them would reduce premiums nonetheless.
More importantly, they would restore the rights of conscience to those individuals and
42

Ibid., p. 78134.
Ibid., p. 78132.
44
Ibid., p. 78132.
45
Chris Jacobs, Whats Blocking Consensus on Health Care? Wall Street Journal July 17, 2015,
http://blogs.wsj.com/washwire/2015/07/17/whats-blocking-consensus-on-health-care/.
46
Section 2713 of the Public Health Service Act, 42 U.S.C. 300gg-13, as revised by PPACA Section 1001(1).
47
Health Resources and Services Administration, Womens Preventive Services Guidelines, December 20, 2016,
https://www.hrsa.gov/womensguidelines2016/index.html.
43

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organizations who have been forced to violate their deeply-held religious beliefs to cover
contraception and other procedures they object to.48
Modify Essential Health Benefits and Actuarial Value: Among Obamacares many new
mandated insurance benefits, two in particular stand out. First, the law provides for a series of
essential health benefitsten categories of health services that all qualified plans must cover. 49
While the essential health benefits address the breadth of health insurance coverage, actuarial
valueor the percentage of annual health expenses paid by an insurance policy on average
addresses the depth of that coverage. The law categorizes individual health plans in four tiers
based on actuarial value: Bronze plans with an average actuarial value of 60 percent; silver plans,
70 percent; gold plans, 80 percent; and platinum plans, 90 percent. 50
Both directly and indirectly, the essential health benefits and actuarial value requirements raise
premiumsby forcing individuals to buy richer coverage, and then by inducing additional
demand for health care through that richer coverage. The Administrations own rule regarding
essential health benefits admitted that the laws requirements include provisions not previously
covered by most forms of health insurance, including rehabilitative and habilitative services and
devices.51 Likewise, a study in the journal Health Affairs concluded that the actuarial value
requirements would raise premiums, as most pre-Obamacare individual market policies did not
meet the new mandated benefit thresholds. 52
However, the final rules regarding essential health benefits and plan actuarial value provide
opportunities to expand benefit flexibility. 53 For instance, the new Administration could provide
states with more options for declaring benchmark plans that meet the essential health benefit
requirements under the statute. The new Administration could also expand the de minimis
variation standards for actuarial value measures required by the law.54 Allowing for additional
variation and flexibility could have a significant impact in reducing premiums, as the
Congressional Budget Office concluded in 2009 that the essential benefits and actuarial value
standards would collectively raise premiums by 27 to 30 percent, all else equal. 55
Enhanced Flexibility for Businesses:
On September 13, 2013, the Treasury Department
issued Notice 2013-54, which stated that an arrangement whereby an employer reimburses some
or all of an employees expenses for the purchase of individual health insurancewhether
United States Conference of Catholic Bishops, The HHS Mandate for Contraception/Sterilization Coverage: An
Attack on Rights of Conscience, January 20, 2012, http://www.usccb.org/issues-and-action/religiousliberty/conscience-protection/upload/preventiveqanda2012-2.pdf.
49
42 U.S.C. 18022, as codified by Section 1302 of PPACA.
50
42 U.S.C. 18022(d), as codified by Section 1302(d) of PPACA.
51
Department of Health and Human Services, final rule on Standards Related to Essential Health Benefits,
Actuarial Value, and Accreditation, Federal Register February 25, 2013, https://www.gpo.gov/fdsys/pkg/FR-201302-25/pdf/2013-04084.pdf, pp. 12860-61.
52
Jon Gabel, et al., More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be
Sold through Exchanges as of 2014, Health Affairs May 2012,
http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082.abstract.
53
HHS, final rule on Essential Health Benefits and Actuarial Value.
54
42 U.S.C. 18022(d)(3), as codified by Section 1302(d)(3) of PPACA.
55
Congressional Budget Office, letter to Sen. Evan Bayh regarding health insurance premiums, November 30, 2009,
https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/11-30-premiums.pdf, pp. 9-10.
48

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through a Health Reimbursement Arrangement (HRA) or some other meanswould be
considered a group health plan. 56 As a result, businesses using HRAs need to meet all of
Obamacares regulatory reforms, such as prohibiting annual limits on the dollar value of
essential health benefits. 57 Group health plans failing to meet those requirements trigger a
penalty of $100 per day, per individual.58
This provision sparked widespread uproar when it first went into effect in July 2015, as the
Obama Administration threatened fines of $36,500 per employee for employers who helped fund
their employees health coverage.59 Members of Congress introduced standalone legislation
exempting small businesses from this requirement.60 This provision was eventually incorporated
into the 21st Century Cures Act, which President Obama himself signed into law on December
13, 2016.61 As a result, small businesses with under 50 employees can now provide contributions
to their workers individual health insurance premiums without triggering Obamacares
regulatory regime.
Expanding upon the precedent of a law President Obama himself signed, the Trump
Administration should withdraw Notice 2013-54, build on Congress actions, and allow
businesses of all sizes the ability to reimburse employees premium costs without triggering
massive fines. Actions in this vein would have salutary benefits in two respects: They would
remove more businesses from Obamacares onerous regulatory requirements, while encouraging
the use of defined contribution health insurance for employees.
Next Steps and the Pathway Forward
Following more than six years of frustration for the American people, the promise of repealing
Obamacare is finally within reach. While passing legislation that unwinds Obamacare in an
orderly, stable manner will require policy-makers to act with care, Congress and the new Trump
Administration can use last years reconciliation legislation as the basis for action. Specifically,
Congress should:

Seek to expand the scope of last years reconciliation legislation to encompass

Obamacares major insurance regulations, consistent with budgetary scores and past
practice and precedents within the Senate;
Add a provision to last years reconciliation legislation freezing enrollment in Medicaid
expansion, effective either upon enactment or shortly thereafter;

56

Internal Revenue Service, Notice 2013-54, September 13, 2016, https://www.irs.gov/pub/irs-drop/n-13-54.pdf.

Section 1563(f) of PPACA added Section 9815 to the Internal Revenue Code, which incorporated most of the
regulatory requirements of the law to group health plans.
58
26 U.S.C. 4980D(b)(1).
59
Grace-Marie Turner, Small Businesses Threatened with $36,500 IRS Fines for Helping Employees with Health
Costs, Forbes June 30, 2016, http://www.forbes.com/sites/gracemarieturner/2015/06/30/small-businessesthreatened-with-36500-irs-fines-for-helping-employees-with-health-costs/#53750b3d4a0e.
60
The Small Business Healthcare Relief Act, introduced by Reps. Charles Boustany (R-LA) and Mike Thompson
(D-CA), H.R. 2911 of the 114th Congress; a companion measure was introduced by Sens. Chuck Grassley (R-IA)
and Heidi Heitkamp (D-ND) as S. 1697 of the 114th Congress.
61
Section 18001 of 21st Century Cures Act, P.L. 114-255.
57

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Explore adding a provision to last years reconciliation legislation freezing enrollment in

Exchange subsidies, provided doing so will not de-stabilize insurance markets;
Appropriate funds for the cost-sharing subsidies in reconciliation legislation, but only for
the defined length of the Obamacare transition period; and
Explore use of the Congressional Review Act to pass a resolution of disapproval
nullifying the Obama Administrations last-minute Notice of Benefit and Payment
Parameters for 2018.

Likewise, the Trump Administration can take several regulatory steps to enhance flexibility and
provide certainty during the transition period:

Limit annual open enrollment to the shortest period feasible, and in no case longer than
one month;
Restrict the use of special enrollment periods, by withdrawing all those added by the
Obama Administration and not included in statute, and/or requiring pre-enrollment
verification for all special enrollment periods;
Provide that, for states using the federal Exchange, any portion of the 3.5 percent
Exchange user fee not used to cover annual operating costs be refunded to enrollees, thus
lowering their premiums;
Revise the medical loss ratio requirements to provide more flexibility for insurers;
Immediately withdraw the December 2015 guidance regarding Section 1332 state
innovation waivers, and provide maximum flexibility within the existing statutory
requirements for states seeking to mitigate the harmful effects of Obamacares insurance
mandates;
Withdraw the contraception mandate that raises premiums and hinders freedom of
conscience;
Modify essential health benefits and actuarial value requirements to provide maximum
flexibility within the statutory framework;
Expand upon Congress efforts allowing small businesses to reimburse their employees
health insurance premiums without facing massive fines, by withdrawing the September
2013 IRS notice and extending flexibility to as many employers as possible; and
Drop the Obama Administrations appeal of House v. Burwell once Congress provides a
temporary, time-limited appropriation for cost-sharing subsidies as part of the repeal
reconciliation bill.

Collectively, this menu of actions would help to unwind most of Obamacares harmful effects,
provide for an orderly transition, and pave the way for Congress to consider and pass alternative
legislation designed to lower health care costs. The promise of Obamacare repeal is within reach;
its time for Congress and the new Administration to seize it.
Chris Jacobs is Founder and CEO of Juniper Research Group, a policy consulting firm based in
Washington. He is on Twitter: @chrisjacobsHC.

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