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[ORAL ARGUMENT SCHEDULED FOR MARCH 25, 2014] No. 145018

United States Court of Appeals for the D.C. Circuit

JACQUELINE HALBIG, et al., Plaintiffs-Appellants, v. KATHLEEN SEBELIUS, in her official capacity as Secretary of Health and Human Services, et al., Defendants-Appellees,

BRIEF OF AMERICAS HEALTH INSURANCE PLANS AS AMICUS CURIAE IN SUPPORT OF DEFENDANTSAPPELLEES AND AFFIRMANCE

On Appeal from the United States District Court for the District of Columbia, No. 1:13-cv-00623

Joseph Miller jmiller@ahip.org Julie Simon Miller jumiller@ahip.org AMERICAS HEALTH INSURANCE PLANS 601 Pennsylvania Avenue, N.W. South Building, Suite 500 Washington, DC 20004 (202) 778-3200

Andrew J. Pincus apincus@mayerbrown.com Brian D. Netter bnetter@mayerbrown.com MAYER BROWN LLP 1999 K Street, N.W. Washington, DC 20006 (202) 263-3000

Counsel for Americas Health Insurance Plans

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CERTIFICATE OF PARTIES, RULINGS, AND RELATED CASES PURSUANT TO CIRCUIT RULE 28(a)(1) A. Parties and Amici. Except for those listed below, all parties,

intervenors, and amici appearing before the district court and in this Court are listed in the Brief for Appellees: American Cancer Society American Cancer Society Cancer Action Network American Diabetes Association American Heart Association Economic Scholars Members of Congress and State Officials Public Health Deans, Chairs, and Faculty B. Rulings Under Review. Accurate references to the rulings at

issue appear in the Brief for Appellees. C. Related Cases. Accurate references to related cases appear

in the Brief for Appellees.

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RULE 26.1 CORPORATE DISCLOSURE STATEMENT Americas Health Insurance Plans (AHIP) is the national trade association representing the health insurance industry. AHIP has no parent company and no publicly-held company has a 10% or greater ownership interest.

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STATEMENT REGARDING CONSENT TO FILE AND SEPARATE BRIEFING All parties have consented to the filing of this brief. AHIP filed its notice of its intent to participate in this case as amicus curiae on February 5, 2014. Pursuant to Circuit Rule 29(d), AHIP certifies that a separate brief is necessary to provide to the Court the perspective and experience of health insurance plans, and their understanding of the rationale for the Affordable Care Acts premium assistance tax credits and the consequences of making those credits available only to individuals residing in States that operate State-based Exchanges.

No counsel for a party authored this brief in whole or in part, and no person other than the amicus curiae, its members, or its counsel contributed money that was intended to fund the preparation or submission of this brief. See Fed. R. App. P. 29(c)(5).

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TABLE OF CONTENTS Page CERTIFICATE OF PARTIES, RULINGS, AND RELATED CASES PURSUANT TO CIRCUIT RULE 28(a)(1).........................i RULE 26.1 CORPORATE DISCLOSURE STATEMENT.......................ii STATEMENT REGARDING CONSENT TO FILE AND SEPARATE BRIEFING .................................................................iii TABLE OF AUTHORITIES.................................................................... vi GLOSSARY ............................................................................................xii STATUTES AND REGULATIONS ......................................................... 1 STATEMENT OF IDENTITY, INTEREST IN CASE, AND SOURCE OF AUTHORITY TO FILE............................................. 1 INTRODUCTION AND SUMMARY OF ARGUMENT .......................... 3 ARGUMENT ............................................................................................ 7 PREMIUM ASSISTANCE TAX CREDITS IN FEDERALLY FACILITATED EXCHANGES ARE AN ESSENTIAL SAFEGUARD AGAINST THE DESTABILIZATION AND FAILURE OF THESE INSURANCE MARKETS. ......................... 7 A. The Shared Responsibility Payments And Premium Tax Credits Are Essential To Create The Broad Risk Pools Needed For Proper Functioning Of The Market Reforms................................................................................... 8 1. 2. A balanced risk pool is essential for a stable health insurance marketplace. ..................................... 9 The Affordable Care Acts reforms include features critical to promoting market stability. ......... 14 a. Insurance market reforms ................................. 15 iv

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TABLE OF CONTENTScontinued Page b. B. Reforms to create a balanced risk pool.............. 19

If Tax Credits Were Unavailable In Federally Facilitated Exchanges, The Risk Pool Would Skew Significantly Toward High-Risk Individuals....................... 24 1. The elimination of tax credits would disproportionately deter participation of those consumers needed to create a balanced risk pool....... 25 The elimination of tax credits in FFEs would restrict applicability of the shared responsibility requirement, substantially eroding its effectiveness in promoting balanced risk pools. ......... 28 Delinking the tax credits from the integrated reforms would create an unequal system in which residents of FFE states would be relegated to non-functioning marketplaces. ................................... 30

2.

3.

CONCLUSION ....................................................................................... 35 CERTIFICATE OF COMPLIANCE....................................................... 36 CERTIFICATE OF SERVICE................................................................ 37

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TABLE OF AUTHORITIES* Page(s) STATUTES AND REGULATIONS *26 U.S.C. 36B................................................................................ 22, 29 26 U.S.C. 36B(b)(2)(A) ............................................................................ 8 26 U.S.C. 106(a).................................................................................... 22 26 U.S.C. note preceding 4001 ............................................................. 21 26 U.S.C. 4980H(b) ............................................................................... 23 *26 U.S.C. 5000A ............................................................................ 21, 31 26 U.S.C. 5000A(e)(1) ........................................................................... 23 26 U.S.C. 5000A(e)(1)(A) ...................................................................... 29 26 U.S.C. 6012(a)(1)(A)(i) ..................................................................... 21 *42 U.S.C. 300gg(a)(1)(A) ..................................................................... 16 42 U.S.C. 300gg(a)(1)(A)(iii) ................................................................. 16 *42 U.S.C. 300gg1............................................................................... 15 *42 U.S.C. 300gg3............................................................................... 17 *42 U.S.C. 300gg4............................................................................... 15 *42 U.S.C. 300gg6............................................................................... 18 *42 U.S.C. 18022 .................................................................................. 18 42 U.S.C. 18022(d)(2)............................................................................ 18 42 U.S.C. 18022(e) ................................................................................ 19 42 U.S.C. 18024(a) .................................................................................. 8 42 U.S.C. 18032(c)(1) ............................................................................ 34 42 U.S.C. 18061 .................................................................................... 21

Authorities upon which we chiefly rely are marked with asterisks.

*

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TABLE OF AUTHORITIEScontinued Page(s) 42 U.S.C. 18063 .................................................................................... 34 42 U.S.C. 18082(c)(2) ............................................................................ 22 *42 U.S.C. 18091(2)(I) .............................................................. 10, 18, 19 Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111152, 124 Stat. 1029 .................................................... 2 Patient Protection and Affordable Care Act, Pub. L. No. 111148, 124 Stat. 119 (2010)........................................... 1 79 Fed. Reg. 3593 (Jan. 22, 2014) ........................................................... 22 Rev. Proc. 201335, 201347 I.R.B. 537 ................................................. 21 OTHER AUTHORITIES Adele M. Kirk, Riding the Bull: Experience With Individual Market Reform in Washington, Kentucky, and Massachusetts, 25 J. HEALTH POLITICS, POLICY & LAW 133 (2000).............................. 12 Am. Academy of Actuaries, Critical Issues in Health Reform: Market Reform Principles (2009), http://www.actuary.org/pdf/health/market_reform_may09.pdf......... 11 Am. Academy of Actuaries, Critical Issues in Health Reform: Risk Pooling (July 2009), http://www.actuary.org/pdf/health/ pool_july09.pdf .................................................................................... 10 Am. Academy of Actuaries, Issue Brief, How Will Premiums Change Under the ACA? (May 2013), http://www.actuary.org/ files/Premium_Change_ACA_IB_FINAL_050813.pdf ....................... 28 ASPE Issue Brief, Health Insurance Marketplace Premiums for 2014 (Sept. 2013), http://aspe.hhs.gov/health/reports/2013/ marketplacepremiums/ib_marketplace_premiums.cfm .................... 27 ASPE Issue Brief, Health Insurance Marketplace: February Enrollment Report (Feb. 12, 2014), http://aspe.hhs.gov/health/ reports/2014/MarketPlaceEnrollment/Feb2014/ ib_2014feb_enrollment.pdf ................................................................. 21 vii

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TABLE OF AUTHORITIEScontinued Page(s) Brief of AHIP and Blue Cross Blue Shield Assn as Amici Curiae on Severability, Natl Fedn of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012) (No. 11393), 2012 WL 72449 .................................... 2, 12 Brief for AHIP as Amicus Curiae in Support of Neither Party, Virginia ex rel. Cuccinelli v. Sebelius, 656 F.3d 253 (4th Cir. 2011) (No. 111057), 2011 WL 795219................................................. 2 Centers for Medicare & Medicaid Services, Reinsurance, Risk Corridors, and Risk Adjustment Final Rule (2012), http://www.cms.gov/cciio/resources/files/downloads/3rs-finalrule.pdf ................................................................................................ 34 Christina Postolowski & Abigail Newcomer, Helping Students Understand Health Care Reform and Enroll in Health Insurance (2013), http://health.younginvincibles.org/wpcontent/uploads/2013/09/ACA-Toolkit_Helping-StudentsUnderstand-Health-Care-Reform-and-Enroll-in-HealthInsurance.pdf ...................................................................................... 19 Congressional Budget Office, An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act 24 (Nov. 30, 2009) ............................................................................... 21 Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024, at 108 tbl. B2 (2014), http://www.cbo.gov/sites/ default/files/cbofiles/attachments/45010-Outlook2014.pdf................ 22 Conrad F. Meier, Universal Health Insurance in Washington State: A Grim Prognosis for All of Us, Medical Sentinel (Mar./Apr. 2000).................................................................................. 13 Henry J. Kaiser Family Foundation, Health Insurance Market Reforms: Pre-Existing Condition Exclusions (Sept. 2012), http:// kaiserfamilyfoundation.files.wordpress.com/2013/01/8356.pdf......... 17

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TABLE OF AUTHORITIEScontinued Page(s) Henry J. Kaiser Family Foundation, State-by-State Estimates of the Number of People Eligible for Premium Tax Credits Under the Affordable Care Act (2013), http://kff.org/health-reform/ issue-brief/state-by-state-estimates-of-the-number-of-peopleeligible-for-premium-tax-credits-under-the-affordable-care-act ....... 23 https://www.healthcare.gov/find-premium-estimates/#results/ &aud=indv&type=med&state=FL&county=Miami-Dade& age0=27&employerCoverage=no&householdSize=1& income=24000 ..................................................................................... 31 Jill Bernstein, Issue Brief: Recognizing Destabilization in the Individual Health Insurance Market (Robert Wood Johnson Foundation July 2010)........................................................................ 13 Katherine Swartz, Sharing Risks, How Government Can Make Health Insurance Markets More Efficient and More Affordable, in THE ECONOMICS OF RISK (Donald J. Meyer, ed., 2003) .................. 11 Kathryn Linehan, Underwriting in the Non-Group Health Insurance Market: The Fundamentals (Natl Health Poly Forum Background Paper No. 69, 2009), http://www.nhpf.org/ library/background-papers/BP69_UnderwritingNonGroup_0604-09.pdf................................................................................................ 9 Laura Skopec & Emily R. Gee, ASPE Research Brief, Nearly 5 in 10 Uninsured Single Young Adults Eligible for the Health Insurance Marketplace Could Pay $50 or Less per Month for Coverage in 2014 (Oct. 28, 2013), http://aspe.hhs.gov/health/ reports/2013/UninsuredYoungAdults/ rb_uninsuredyoungadults.pdf ............................................................ 27 Linda J. Blumberg & John Holahan, Do Individual Mandates Matter? (Urban Inst. 2008), http://www.urban.org/ UploadedPDF/411603_individual_mandates.pdf .............................. 10

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TABLE OF AUTHORITIEScontinued Page(s) Mark W. Stanton, The High Concentration of U.S. Health Care Expenditures (Agency for Healthcare Research & Quality Pub. No. 06-0060, 2006), http://www.ahrq.gov/research/findings/ factsheets/costs/expriach/expendria.pdf....................................... 11, 12 Memorandum from Marilyn Tavenner, CMS Admin., to Kathleen Sebelius, Secy of Health & Human Services, Re: Projected Monthly Enrollment Targets for Health Insurance Marketplaces in 2014 (Sept. 5, 2013), http:// waysandmeans.house.gov/uploadedfiles/ enrolltargets_09052013_.pdf .............................................................. 25 Natl Assn of Ins. Commrs, Adverse Selection Issues and Health Insurance Exchanges Under the Affordable Care Act (2011), http://www.naic.org/store/free/ASE-OP.pdf ......................................... 9 Paul Howard, Building a Market-Based Health-Insurance Exchange in New York 7 (Ctr. for Med. Progress 2011), http://nyshealthfoundation.org/uploads/resources/marketbased-health-insurance-exchange-april-2011.pdf.............................. 13 Peter Suderman, The Lesson of State Health-Care Reforms, WALL ST. J., Oct. 15, 2009............................................................................. 12 Robert Pear, Gender Gap Persists in Cost of Health Insurance, N.Y. TIMES, Mar. 19, 2012 .................................................................. 16 Robert Wood Johnson Foundation, Implications of Limited Age Rating Bands Under the Affordable Care Act (2013), http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2013 /rwjf404637/subassets/rwjf404637_1.................................................. 16 Roger Stark, Overview of the Individual Health Insurance Market in Washington State (Wash. Poly Ctr. Jan. 2011)....................... 12, 13 Sarah Lyall, Bill to Overhaul Health Insurance Passes in Albany, N.Y. TIMES, July 2, 1992 ..................................................................... 13 Stephen T. Parente & Tarren Bragdon, Why Health Care Is So Expensive in New York, WALL ST. J., Oct. 16, 2009 ..................... 13, 14 x

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TABLE OF AUTHORITIEScontinued Page(s) Uwe E. Reinhardt, Lost in the Shuffle: The Overarching Goals of Health Reform, N.Y. TIMES ECONOMIX BLOG (Aug. 7, 2009), http:// economix.blogs.nytimes.com/2009/08/07/lost-in-theshuffle-the-overarching-goals-of-health-reform)................................ 15

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GLOSSARY ACA Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 Americas Health Insurance Plans Federally-facilitated exchanges

AHIP FFE

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STATUTES AND REGULATIONS Pertinent materials are contained in Appellants addendum. STATEMENT OF IDENTITY, INTEREST IN CASE, AND SOURCE OF AUTHORITY TO FILE Americas Health Insurance Plans (AHIP) is the national trade association representing the health insurance industry. Along with its predecessors, AHIP has over fifty years of experience in the health insurance industry. AHIPs members provide health and supplemental benefits to more than 200 million Americans, offering a wide range of insurance options to consumers, employers of all sizes, and

governmental purchasers.

As a result, AHIPs members have broad

experience working with hospitals, physicians, patients, employers, state governments, the federal government, pharmaceutical and device companies, and other healthcare stakeholders to ensure that patients have access to needed treatments and medical services. That

experience gives AHIP extensive first-hand and historical knowledge about the Nations healthcare and health insurance systems and a unique understanding of how those systems work. Health insurance plans are among the entities most directly and extensively regulated by the Patient Protection and Affordable Care

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Act, Pub. L. No. 111148, 124 Stat. 119 (2010), amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111152, 124 Stat. 1029 (ACA). AHIP has participated as amicus curiae in other cases to explain the practical operation of the ACA.1 Likewise here, because other briefs address the legal standards applicable to this appeal, AHIP seeks to provide the Court with its expertise regarding the operation of the health insurance market, the changes made by the ACA, and the consequences that would follow from precluding access to the ACAs premium assistance tax credits in the 34 States in which consumers purchase individual insurance through a federally facilitated exchange (FFE). This perspective will provide the Court with a more detailed understanding of the practical consequences of the construction of the statute urged by Appellants and their amici.

Brief of AHIP and Blue Cross Blue Shield Assn as Amici Curiae on Severability 2733, Natl Fedn of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012) (No. 11393), 2012 WL 72449; Brief for AHIP as Amicus Curiae in Support of Neither Party, Virginia ex rel. Cuccinelli v. Sebelius, 656 F.3d 253 (4th Cir. 2011) (No. 111057), 2011 WL 795219.
1

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INTRODUCTION AND SUMMARY OF ARGUMENT The Affordable Care Act fundamentally changed our Nations system of health insurance. The individual health insurance market prior to the ACAother than in the few States that had implemented their own variants of healthcare reformwas based on individualized assessments of risk. Consumers seeking individual health insurance like consumers purchasing life insurance and auto insuranceshopped for and purchased insurance policies with availability, scope of coverage, and price determined on the basis of the consumers own personal circumstances. The ACA employed three types of reforms to accomplish its goal of making quality, affordable health insurance available to more Americans: (1) insurance market reforms, including guaranteed issue (which means that no one can be denied insurance based on individual characteristics, including pre-existing health conditions), adjusted community rating (which means that premiums may vary based only on age, geography, family size, and tobacco use), and minimum coverage requirements (which mandate that policies at least provide specified types of coverage); (2) personal responsibility for obtaining health 3

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insurance, reinforced by a tax penalty when individuals fail to obtain minimum essential insurance coverage (the shared responsibility requirement); and (3) premium tax credits to make the mandated coverage affordable for low- and middle-income individuals and families. These three elements work together to create a viable insurance market based on broad consumer participation. Because the market reforms effectively eliminate risk-based underwriting based on the individual consumers characteristics, risk must be spread across a demographically-balanced pool of insureds, particularly individuals of different ages who are likely to incur different levels of medical expenses. Without the shared responsibility requirement (which increases the cost of remaining uninsured) and the premium tax credits (which make it easier for many individuals to obtain insurance), only those who expect to incur substantial healthcare costs would participate in the individual market, which would in turn push up the average medical cost incurred by that pool of insureds, leading to a so-called death spiral of premium increases and market contraction. 4 If the shared

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responsibility requirement and premium tax credits did not work handin-hand with the market reforms, the ACAs reforms would lead to unstable markets in the 34 States with federally-facilitated exchanges. This phenomenon, known as adverse selection, is well recognized in the literature and features prominently in the analysis of the ACA by the American Academy of Actuaries. It occurred in conjunction with a series of failed pre-ACA health insurance reform efforts in the States (described infra at 1214), which demonstrate that when market reforms are enacted without a shared responsibility requirement or tax incentives, the result is an ever-shrinking market in which only the very sick ultimately find it advantageous to purchase health insurance. Premium tax credits (and the related shared responsibility payments) are thus essential components of an actuarially-viable marketplace because of their integral relationship to the ACAs market reforms. And there is no practical reason to distinguish between Stateand federally-operated exchanges in this regard. The ACAs shared

responsibility obligation and eligibility for premium assistance tax credits are governed by nationally-established standards with payment from the federal treasury, regardless of which sovereign administers the 5

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particular exchange.

It makes no difference to the market reforms

whether the exchange is State- or federally-operated. Likewise from the perspective of consumers, State- and federally-operated exchanges perform the same basic functionsfacilitating the comparison of plan choices, the determination of eligibility, and the enrollment process. Delinking the three integrated components of the ACAs reform package in States with federally-facilitated insurance exchanges would create severely dysfunctional insurance markets in those 34 States, significantly disadvantaging millions of consumers in those States. Far beyond the question of whether certain individuals could obtain subsidies on their premiums, the lack of tax credits in the FFEs would alter the fundamental dynamics of those markets in a manner that would make insurance significantly less affordable even to those who would not rely on subsidies. It would leave consumers in those States with an unstable market and far higher costs.

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ARGUMENT PREMIUM ASSISTANCE TAX CREDITS IN FEDERALLY FACILITATED EXCHANGES ARE AN ESSENTIAL SAFEGUARD AGAINST THE DESTABILIZATION AND FAILURE OF THESE INSURANCE MARKETS. The Affordable Care Act employs three integrated reforms to create a new framework for the individual health insurance

marketplacestandards governing availability, coverage, and pricing of insurance (the market reforms); shared responsibility payments; and premium tax credits to help low- and middle-income individuals purchase insurance policies. See infra Section A. Severing the shared responsibility payments and the tax credits from the market reforms in the States with FFEs would prevent the creation of the balanced risk pools that are essential for the proper functioning of these markets. Young and healthy individuals would opt out of the exchanges and millions of low- and middle-income families would become exempt from the ACAs shared responsibility payments. The resulting individual

health insurance markets would be unstable in the 34 States with

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FFEs,2 producing a deleterious impact on the residents of those States. See infra Section B.3 A. The Shared Responsibility Payments And Premium Tax Credits Are Essential To Create The Broad Risk Pools Needed For Proper Functioning Of The Market Reforms.

The Affordable Care Act took a comprehensive approach to reform. Recognizing the key elements of a well-functioning insurance market and the critical importance of a balanced risk poolthe statute pairs reforms that increase availability of health insurance and decrease disparities in premiums with tax credits and a financial penalty for failing to purchase insurance, a combination essential to produce wellfunctioning markets.

Those States are Alabama, Alaska, Arizona, Arkansas, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming.
2

There are three primary markets for health insurance: large group, small group, and individual (sometimes called nongroup). See 42 U.S.C. 18024(a). The tax credits at issue in this case apply only to the individual market. See 26 U.S.C. 36B(b)(2)(A).
3

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1.

A balanced risk pool is essential for a stable health insurance marketplace.

Like all forms of insurance, health insurance is based on the pooling and transfer of risks. Individuals future healthcare expenses are unpredictable; the purpose of insurance is to transfer from the individual to the insurer the risk of an unanticipated and unaffordable spike in medical costs. An insurer aggregates risk into a larger pool and spreads that risk by setting premiums that reflect the average risk in the pool. Prior to the enactment of the ACA, insurers had to employ a number of tools to prevent development of unbalanced risk pools in the individual insurance market. In particular, applicants were

underwritten to determine their insurability, and * * * charged higher or lower premiums based on age and health status.4

Natl Assn of Ins. Commrs, Adverse Selection Issues and Health Insurance Exchanges Under the Affordable Care Act 1 (2011), http://www.naic.org/store/free/ASE-OP.pdf; see also Kathryn Linehan, Underwriting in the Non-Group Health Insurance Market: The Fundamentals 46 (Natl Health Poly Forum Background Paper No. 69, 2009), http://www.nhpf.org/library/background-papers/BP69_ UnderwritingNonGroup_06-04-09.pdf.
4

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When individuals premiums for health insurance do not reflect such risk-based underwriting, the economic phenomenon of adverse selection is likely to occur.5 As the ACAs statutory findings explain, if individuals are guaranteed that they will be able to purchase insurance at a set price, many will wait to purchase health insurance until they need[] care. 42 U.S.C. 18091(2)(I). The consequences of adverse selection are extremely significant. When healthier individuals perceive no economic benefit to purchasing coverage, the insurance pool becomes increasingly skewed to those with higher expected claims.6 Because premiums are a function of the

average expected payout of benefits to pool participants, an upward shift in the risk profile of the pool will lead to increased premiums for all participants in that pool.7

5 6

See Linehan, supra note 4, at 4.

See Am. Academy of Actuaries, Critical Issues in Health Reform: Risk Pooling 1 (July 2009), available at http://www.actuary.org/pdf/ health/pool_july09.pdf. See Linda J. Blumberg & John Holahan, Do Individual Mandates Matter? 2 (Urban Inst. 2008), http://www.urban.org/ UploadedPDF/411603_individual_mandates.pdf.
7

10

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Left unaddressed, adverse selection will destabilize insurance markets in an adverse-selection death spiral. When healthy

individuals opt out of the individual insurance market, those who are left are, on average, less healthy (and therefore prone to higher-thanaverage medical expenses). A sicker pool of consumers results in higher premiums, which causes an additional relatively healthy subset of participants to drop out, which in turn results in a further increase in premiums.8 This effect is particularly pronounced for health insurance, because the individuals who know that they will require substantial amounts of medical carei.e., those who are most likely to benefit from risk-sharing and most likely to seek insurancehave much greater medical costs. Just 5% of the population accounts for 49% of medical spending while 50% of the population accounts for only 3%.9

Katherine Swartz, Sharing Risks, How Government Can Make Health Insurance Markets More Efficient and More Affordable, in THE ECONOMICS OF RISK 117 (Donald J. Meyer, ed., 2003); see also Am. Academy of Actuaries, Critical Issues in Health Reform: Market Reform Principles (2009), http://www.actuary.org/pdf/health/ market_reform_may09.pdf.
8

Mark W. Stanton, The High Concentration of U.S. Health Care Expenditures 23 (Agency for Healthcare Research & Quality Pub. No.
9

(footnote continued)

11

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The perils of adverse selection are not merely theoretical. History shows that market reforms implemented without requiring that individuals purchase insurance or pay a penalty and without premium subsidies produce adverse selection. Thus, prior reforms in Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, New York, Vermont, and Washington that prohibited risk-based underwriting but did not require the purchase of insurance or provide other significant incentives for obtaining insurance resulted in markets with death spiral characteristics.10 In Washington, for example, the Legislature reformed the individual health insurance market in 1993 to guarantee that residents could purchase insurance based on communityand not individual rates.11 During the first three years, premiums in Washingtons

06-0060, 2006), http://www.ahrq.gov/research/findings/factsheets/costs/ expriach/expendria.pdf. See Brief of AHIP and Blue Cross Blue Shield Assn as Amici Curiae, supra note 1, at 2733. Although Massachusetts is recognized as a model for the Affordable Care Act, there was a prior, failed reform attempt dating to 1996. Id. at 3132.
10

Adele M. Kirk, Riding the Bull: Experience With Individual Market Reform in Washington, Kentucky, and Massachusetts, 25 J. HEALTH POLITICS, POLICY & LAW 133, 13637 (2000).
11

12

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individual

health-insurance

market

increased

by

78

percent.12

Enrollment fell by 25 percent.13 By September 1999six years after the reforms had been introducedall but 2 of the States 19 private health insurers had withdrawn from the market, and the last 2 had announced their intention to withdraw. [T]he individual market had essentially collapsed.14 Washington repealed the market reforms in 2001.15 New York experienced a similar dynamic. In 1992, the

Legislature reformed the health-insurance market by guaranteeing the issuance of insurance at community-based rates. These reforms

prompted a sharp decline of the individual insurance market.16 In

See Peter Suderman, The Lesson of State Health-Care Reforms, WALL ST. J., Oct. 15, 2009, at A21.
12

Roger Stark, Overview of the Individual Health Insurance Market in Washington State 1 (Wash. Poly Ctr. Jan. 2011).
13

Id.; see also Conrad F. Meier, Universal Health Insurance in Washington State: A Grim Prognosis for All of Us, Medical Sentinel (Mar./Apr. 2000).
14

See Jill Bernstein, Issue Brief: Recognizing Destabilization in the Individual Health Insurance Market 4 (Robert Wood Johnson Foundation July 2010).
15

Paul Howard, Building a Market-Based Health-Insurance Exchange in New York 7 (Ctr. for Med. Progress 2011),
16

(footnote continued)

13

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1992, 1.2 million New Yorkers purchased individual insurance policies.17 But premiums had increased 3540% by 1996.18 By 2010, only 31,000 New Yorkers remained in the individual insurance marketa decrease of 97%.19 At that point, the only people who

participated in the market were those who were very sick (and affluent).20 2. The Affordable Care Acts reforms include features critical to promoting market stability.

The Affordable Care Act imposed nationwide minimum standards governing availability, coverage scope, and pricing of individual policies, which bar insurers from using the tools that they previously had employed to manage and price their risks and to ensure market stability. To prevent market destabilization, the ACA coupled those

http://nyshealthfoundation.org/uploads/resources/market-based-healthinsurance-exchange-april-2011.pdf. See Sarah Lyall, Bill to Overhaul Health Insurance Passes in Albany, N.Y. TIMES, July 2, 1992, at A1.
17

Stephen T. Parente & Tarren Bragdon, Why Health Care Is So Expensive in New York, WALL ST. J., Oct. 16, 2009.
18 19 20

Id. Howard, supra note 16, at 7. 14

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changes with new measures designed to promote balanced risk pools and to deter adverse selection. Those changesthe prohibition of prior tools used to manage risk pools and the adoption of shared responsibility payments and tax creditsconstitute a single integrated package. None of the reforms, standing alone, would result in a healthy and sustainable marketplace for insurance. Rather, as a prominent scholar in healthcare economics explained at the time, the exchanges were built on a three-legged stool that is useless without all three legs.21 a. Insurance market reforms

The ACA contains one set of reforms that significantly alters relationships between insurers and consumers. These reforms ensure that all individuals have access to health insurance for which premiums are assessed at the community-level rather than based on individual risk factors.

Uwe E. Reinhardt, Lost in the Shuffle: The Overarching Goals of Health Reform, N.Y. TIMES ECONOMIX BLOG (Aug. 7, 2009), http:// economix.blogs.nytimes.com/2009/08/07/lost-in-the-shuffle-theoverarching-goals-of-health-reform).
21

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Guaranteed issue. The ACA provides that each health insurance issuer * * * must accept every * * * individual in the State that applies for such coverage. 42 U.S.C. 300gg1. Prior to the ACA, insurers were able to construct risk pools that included only individuals with characteristics specified by the insurer. Thus, individuals who were previously deemed uninsurable based on their individual characteristics (e.g., pre-existing conditions) are guaranteed to be issued healthcare coverage. See also 42 U.S.C. 300gg4 (prohibiting eligibility rules

based on enumerated health status-related factors). Adjusted community rating. The ACA changed the methodology for calculating premiums. Prior to the ACA, premiums could be

calculated on the basis of a variety of factors, including gender (with younger females paying more than younger males22), age (with older tiers of Americans paying more than younger tiers23), and personal health histories. Under the ACA, only four factors may be considered: Robert Pear, Gender Gap Persists in Cost of Health Insurance, N.Y. TIMES, Mar. 19, 2012.
22

Robert Wood Johnson Foundation, Implications of Limited Age Rating Bands Under the Affordable Care Act 1 (2013), http:// www.rwjf.org/content/dam/farm/reports/issue_briefs/2013/rwjf404637/ subassets/rwjf404637_1.
23

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(1) whether a plan covers an individual or a family; (2) the geographical area; (3) the consumers age; and (4) tobacco use. 42 U.S.C.

300gg(a)(1)(A). The ACA caps age-based variations by a 3-to-1 ratio. See 42 U.S.C. 300gg(a)(1)(A)(iii). As a result, health insurance is

relatively more affordable for older Americans, but relatively more expensive for younger Americans. Likewise, premiums for younger

males have become relatively more expensive and premiums for younger females have become relatively less expensive. Prohibition on pre-existing medical condition exclusions. The

ACA prohibits insurers from excluding pre-existing medical conditions or imposing a waiting period before their coverage. 42 U.S.C. 300gg 3. Prior to the ACA, insurers mitigated risk in the individual market by issuing policies that excluded coverage for pre-existing medical conditions, either temporarily or permanently.24 Therefore, persons

with pre-existing medical conditions now have greater incentives to participate in the healthcare exchanges.

See Henry J. Kaiser Family Foundation, Health Insurance Market Reforms: Pre-Existing Condition Exclusions (Sept. 2012), http:// kaiserfamilyfoundation.files.wordpress.com/2013/01/8356.pdf.
24

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Minimum coverage requirements. The ACA requires individual insurance plans to offer government-specified essential health

benefits, which include items and services in ten categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. 42 U.S.C. 300gg6, 18022. These policies must cover at least 60 percent of anticipated

medical expenses (known as actuarial value) with statutorilydetermined ceilings on out-of-pocket payments by consumers. Before the statutes enactment, consumers could purchase policies tailored to their limited needs. As a result of the minimum coverage requirements and the minimum actuarial value requirements, previously popular low-premium, less comprehensive policies are unavailable under the ACA.25 See also 42 U.S.C. 18022(d)(2) (prescribing requirements for actuarial value). Individuals are eligible to enroll in an insurance plan with a higher deductible (that therefore has a lower actuarial value) if
25

(footnote continued)

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b.

Reforms to create a balanced risk pool

If enacted by themselves, the insurance market reforms would have produced unstable insurance exchanges. Indeed, the ACA

expressly acknowledges that many individualsknowing that they could not be refused coveragewould wait to purchase health insurance until they needed care. 42 U.S.C. 18091(2)(I). Individuals could have purchased health insurance on the way to the hospital emergency room, the equivalent of purchasing auto insurance after an accident. A well-functioning insurance pool must include low-risk

individuals to balance the medical costs of high-risk individuals, but the insurance market reforms, standing alone, would attract high-risk individuals and deter participation by low-risk individuals. Healthy and young Americans, who traditionally have opted-out of the insurance market at disproportionate rates,26 face increased they are younger than 30 years old or are exempt from shared responsibility payments. Id. 18022(e). Christina Postolowski & Abigail Newcomer, Helping Students Understand Health Care Reform and Enroll in Health Insurance (2013), http://health.younginvincibles.org/wp-content/uploads/2013/09/ACAToolkit_Helping-Students-Understand-Health-Care-Reform-and-Enrollin-Health-Insurance.pdf (Young adults ages 18 to 34 are uninsured at almost double the rate of older adults.).
26

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premiums compared to premiums in the pre-ACA insurance markets as a result of community rating. And persons with chronic pre-existing conditions who otherwise might have been uninsurable are now eligible for insurance at the same premiums as persons in good health. The ACA includes incentives for obtaining insurance (and disincentives for declining to carry insurance) that collectively minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals. 42 U.S.C. 18091(2)(I). Shared responsibility payment obligation. To maximize the

number of younger and healthier individuals who participate in the market for individual health insurance, the ACA requires individuals to obtain minimum essential healthcare coverage or to make a shared responsibility payment through the tax system. Those payments

which vary based on an individuals household incomecreate additional costs for those who might otherwise choose not to enroll in healthcare insurance coverage.27

After a phase-in period that ends in 2016, persons who fail to carry minimum essential coverage will owe an annual tax equal to the greater of $695 or 2.5% of household income in excess of the IRSs threshold for filing a tax return ($10,150 for an individual for tax year
27

(footnote continued)

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Premium tax credits. The ACA pairs the shared responsibility payment obligation with a system of premium tax credits for low- and middle-income Americans. Just as the penalty for nonparticipation

imposes a cost on those who opt out of health insurance, tax credits make it easier for these individuals to purchase insurance in the individual health insurance marketplaceand thereby provide an incentive for participation. The tax credits were intended to affect the cost-benefit calculus for a large number of Americans. Prior to passage of the ACA, the

Congressional Budget Office estimated that the vast majority of all exchange enrollees78%would be entitled to premium assistance tax credits.28 The early experience in the Exchanges has corroborated those estimates, with 82% of enrollees claiming subsidies.29

2014). See 26 U.S.C. 5000A, 6012(a)(1)(A)(i); Rev. Proc. 201335, 201347 I.R.B. 537. See Congressional Budget Office, An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act 24 (Nov. 30, 2009) (JA 144).
28

See ASPE Issue Brief, Health Insurance Marketplace: February Enrollment Report 4 (Feb. 12, 2014), http://aspe.hhs.gov/health/reports/ 2014/MarketPlaceEnrollment/Feb2014/ib_2014feb_enrollment.pdf.
29

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These credits play an especially important role because the ACAs minimum coverage requirements, minimum actuarial value

requirements, new premium taxes,30 and new adjusted community rating rules make unavailable less-costly insurance that was purchased by many consumers prior to enactment of the reform law. To encourage the purchase of insurance, the tax credits were calibrated to offset the additional costs resulting from these new requirements. The credits also address the tax disadvantage suffered by individuals and families who purchase insurance on their own, and therefore do not receive the tax preference accorded to employer-based coverage.31 The statute provides that individuals with household incomes less than 400% of the federal poverty limit (in 2014, $46,680 for an individual or $95,400 for a family of four32) are entitled to tax credits (26 U.S.C. 36B) that immediately reduce their premiums for health insurance purchased through an exchange (42 U.S.C. 18082(c)(2)).
30 31

See, e.g., 42 U.S.C. 18061; 26 U.S.C. note preceding 4001;

See 26 U.S.C. 106(a) (excluding employer-provided health plans from gross income). See Annual Update of HHS Poverty Guidelines, 79 Fed. Reg. 3593 (Jan. 22, 2014).
32

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By making insurance with the new, statutorily-mandated scope of coverage less expensive, the credits tilt a rational consumers costbenefit calculation in favor of purchasing insurance. That is

particularly true for young and healthy individuals who otherwise might not perceive a sufficient economic benefit. The tax credits can be substantialthey are expected to average $4,700 in 2014.33 For many consumers, that tax credit is sufficient to pay 100 percent of premiums.34 Moreover, the tax credits work in tandem with the shared responsibility payment obligation. That is because no payment

obligation attaches when insurance cost would exceed 8% of household income after government contributions (26 U.S.C. 5000A(e)(1)). In

the absence of the tax credits, a large portion of the population would fall within that exempt category, because there would be no tax credits See Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024, at 108 tbl. B2 (2014), http://www.cbo.gov/sites/ default/files/cbofiles/attachments/45010-Outlook2014.pdf.
33

See Henry J. Kaiser Family Foundation, State-by-State Estimates of the Number of People Eligible for Premium Tax Credits Under the Affordable Care Act (2013), http://kff.org/health-reform/issuebrief/state-by-state-estimates-of-the-number-of-people-eligible-forpremium-tax-credits-under-the-affordable-care-act.
34

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to reduce the insurance cost to the 8%-or-below level.35 That would significantly undermine the incentive structure provided by the shared responsibility payments and the tax credits, which is necessary to achieve broad participation and balanced risk pools in the individual insurance markets. * * *

In sum, the ACA took away certain tools for managing risk but introduced new mechanisms for assuring a stable risk pool by keeping adverse selection in check. The tax credits and the shared

responsibility payments are essential components of a sustainable private market for insurance. B. If Tax Credits Were Unavailable In Federally Facilitated Exchanges, The Risk Pool Would Skew Significantly Toward High-Risk Individuals.

Eliminating premium assistance tax credits for participants in the federally-facilitated exchanges (FFEs) would undermine the ACAs

The tax credits are also tied to the so-called employer mandate as well. See 26 U.S.C. 4980H(b) (imposing shared responsibility payment of $3,000 per year for large employers for each employee who receives a tax credit). Although beyond the scope of this brief, the link between tax credits and the health-insurance incentives for large employers underscores the interconnected nature of the ACAs reforms.
35

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central goal of achieving stable insurance markets based on a broad risk pool containing an appropriate mix of low-risk and high-risk individuals. The 34 States in which the exchange is facilitated by the federal government contain 56% of those projected nationwide to enroll in health insurance through an exchange.36 If tax credits were

unavailable in those States, the integrated and essential companions to the market reforms would not work as designedthe incentives to purchase insurance (the tax credits) would disappear and the disincentives to remaining uninsured (the shared responsibility payments) would be eroded significantly; those changes inevitably would trigger adverse selection and instability in the exchanges. 1. The elimination of tax credits would disproportionately deter participation of those consumers needed to create a balanced risk pool.

The most critical element to maintaining the exchanges stability involves the attributes of those enrolled, not in terms of raw numbers, See Memorandum from Marilyn Tavenner, CMS Admin., to Kathleen Sebelius, Secy of Health & Human Services, Re: Projected Monthly Enrollment Targets for Health Insurance Marketplaces in 2014 (Sept. 5, 2013), http://waysandmeans.house.gov/uploadedfiles/ enrolltargets_09052013_.pdf.
36

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but in terms of their relative risk characteristics. As explained above, an insurance plan that attracts only unhealthy subscribers will face upward pressure on premiums in a manner that triggers adverse selection and a pattern of premium increases and participant departures leading to substantial instability. Eliminating premium tax credits for insurance purchased on FFEs will inevitably produce this effect. A rational consumer deciding whether to purchase health insurance will compare the annual cost of the insurance to his or her expected medical costs. Particularly when the consumers budget is

stretchedas it often is for low- and middle-income familiesthe consumer will likely be reluctant to purchase insurance unless projected medical expenses exceed premium costs, and the insurance cost is relatively low. Although insurance provides other important benefits such as the assurance that unexpected medical costs will not lead to bankruptcysuch benefits may be less significant to low- and middleincome families than more immediate necessities. The cost differential produced by eliminating the tax credits is substantial. For example, in States with FFEs, the tax credits reduce 26

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insurance premiums to less than $50 per month for 46 percent of uninsured young adults.37 Without tax credits, the average lowest-cost bronze plan for young adults would cost $163 per month38a difference of more than $1,200 per year. In the absence of the tax credits, therefore, only consumers with significant anticipated medical expenses will conclude that the unsubsidized premium is a justifiable expenditure compared with more immediate and tangible needs. But without a distribution of enrollees with different expected medical expenses, the risk pool will be unbalanced and death spiral characteristics will result. Indeed, an American Academy of Actuaries analysis found that a key factor in preventing premium increases in the exchanges is the availability of premium assistance tax credits to mitigate the effects of adverse selection: Laura Skopec & Emily R. Gee, ASPE Research Brief, Nearly 5 in 10 Uninsured Single Young Adults Eligible for the Health Insurance Marketplace Could Pay $50 or Less per Month for Coverage in 2014, at 3 (Oct. 28, 2013), http://aspe.hhs.gov/health/reports/2013/ UninsuredYoungAdults/rb_uninsuredyoungadults.pdf.
37

ASPE Issue Brief, Health Insurance Marketplace Premiums for 2014, at 3 (Sept. 2013), http://aspe.hhs.gov/health/reports/2013/ marketplacepremiums/ib_marketplace_premiums.cfm.
38

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Changes in overall premium averages will depend on changes in the composition of the risk pool. * * * This in turn will reflect the effectiveness of the individual mandate and premium subsidies designed to increase coverage among young and healthy individuals, combined with the increased ability of high-cost individuals to purchase coverage due to the guaranteed-issue requirement.39 2. The elimination of tax credits in FFEs would restrict applicability of the shared responsibility requirement, substantially eroding its effectiveness in promoting balanced risk pools.

The elimination of tax credits for insurance purchased on the FFEs would have an additional, extremely important effect: exempting numerous uninsured individuals from the shared responsibility payment obligation, and thereby eliminating that significant incentive for ensuring balanced risk pools. The shared responsibility payment obligation does not apply to low- and middle-income individuals and families who could not afford coverage. Thus, the obligation to obtain minimum coverage excludes

any individual whose required contribution * * * exceeds 8 percent of

Am. Academy of Actuaries, Issue Brief, How Will Premiums Change Under the ACA? 3 (May 2013), http://www.actuary.org/files/ Premium_Change_ACA_IB_FINAL_050813.pdf.
39

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such individuals household income. 26 U.S.C. 5000A(e)(1)(A). For persons eligible to purchase insurance only through an exchange, the required contribution is the annual premium for the lowest cost bronze plan available in the individual market[,] * * * reduced by the amount of the credit allowable under section 36Ba reference to the premium assistance tax credits. Id. 5000A(e)(1)(B)(ii). Because the tax credits are taken into account in calculating the annual premium reducing the premium amount used in applying the statutes 8% test they have the effect of increasing significantly the number of consumers subject to the shared responsibility payment obligation. That statutory linkage between the tax credits and the shared responsibility payment obligation demonstrates that the provisions are designed to work in tandem to ensure broad participation in the health insurance system. Removing the tax credits would vitiate the payment obligation for a substantial number of Americans. When States, prior to the ACA, implemented market reforms without a financial penalty for failing to obtain insurance, the resulting adverse selection spiral produced unstable insurance markets.

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The ACA includes two primary countermeasures to marketdestabilizing adverse selection: tax credits and the shared responsibility payments. The unavailability of tax credits would significantly

undermine both of those tools. 3. Delinking the tax credits from the integrated reforms would create an unequal system in which residents of FFE states would be relegated to non-functioning marketplaces.

Delinking the tax credits (and, consequentially, the shared responsibility payments) from the market reformswhich indisputably apply nationwidewould leave residents of the 34 States with FFEs significantly worse off than consumers in States with State-run Exchanges. First, eliminating the tax credits would result in grossly inequitable treatment of consumers in States with FFEs. Those

families and individuals would not have the benefit of the tax subsidies available to individual market purchasers in other States with Statebased Exchanges (or of the favorable tax treatment available to individuals and families with employer-based coverage). That would make health insurance less affordablethe precise result the tax credits were intended to prevent. 30

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Second, eliminating the tax credits would inevitably produce significantly unbalanced risk pools in FFE States, leaving those States with dysfunctional insurance markets. The consumers who purchase insurance in the absence of tax credits and those who purchase insurance when tax credits are available will have markedly different risk profiles. That is what produces the adverse-selection dynamic. By way of example, consider the economic decision for a hypothetical 27-year-old from Miami-Dade County, Florida who earns $24,000 per year and seeks coverage on Floridas FFE. That individual would be eligible to purchase a bronze-level plan for $75 per month (after a tax credit of $88 per month).40 On an annualized basis, the individuals out-of-pocket cost would be $900.00 (12 monthly premium payments of $75)but he or she also would have avoided a shared responsibility payment of $138.50,41 which results in an effective economic cost of $761.50 per year compared to not See https://www.healthcare.gov/find-premium-estimates/#results/ &aud=indv&type=med&state=FL&county=Miami-Dade&age0=27& employerCoverage=no&householdSize=1&income=24000.
40

The shared responsibility payment in 2014 for an individual earning $24,000 is the greater of $95 or 1% of income exceeding $10,150, which is $138.50. See supra note 27.
41

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obtaining health insurance.

In years after 2014, the shared

responsibility payment would increaseto $695 in 2016 for a person earning $24,000thereby further reducing the effective economic cost of obtaining insurance. See 26 U.S.C. 5000A. If tax credits were unavailable, the same individual would have to pay $163 per month for the same policy and would be exempt from any shared responsibility payment (because the insurance cost would exceed the 8% threshold). Thus, he or she would face a choice between

purchasing health insurance and paying a $1,956 annual premium (12 monthly premium payments of $163) or not purchasing health insurance and paying no penalty. With the tax credits, an economically rational individual would acquire health insurance if that individual expected to derive at least $761.50 per year in economic value from the policy. But if tax credits were unavailable, the individual would acquire health insurance only if he or she expected to derive at least $1,956 per year in economic value from the policy. There are marked differences in the risk profiles of those who expect to benefit at least $761.50 per year and the smaller subgroup of 32

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those who expect to benefit at least $1,956 per year. This is what produces the adverse-selection dynamic. Only those persons who

expected higher medical expenses would opt into the system, which would place upward pressure on premiums and further skew the pool of exchange participants, leading to further increases in premiums and a pool ever-more tilted toward those with higher expected medical expenses. That same dynamic would play out across different age groups, in different States, and in different low- and middle-income brackets. The ACAs tools for balancing the risk pool would be ineffective, and the consequences would resemble the death spiral phenomenon

accompanying the failed State reform efforts of the 1990s. Third, eliminating the tax credits in States with FFEs would not just undermine the stability of the FFEs; it also would undermine the market for individual health insurance policies outside the FFE marketplaces. Insurers may sell individual policies outside the exchanges, but the exchanges and other individual insurance markets are linked through common risk pooling mechanisms, which means that 33

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dysfunctional FFEs will adversely affect the stability of non-exchange individual markets.42 And insurers that operate both inside and outside the exchanges must consider all enrollees * * * to be members of a single risk pool. 42 U.S.C. 18032(c)(1). These three significant adverse consequences are fundamentally inconsistent with the goals of the ACA, which was intended to achieve nationwide reform and make stable, functioning insurance markets available to all Americans.

For example, through the permanent risk adjustment program (42 U.S.C. 18063), funds from lower risk plans in the individual and small group markets are transferred to higher risk plans, inside and outside the exchange, which means that an imbalance in the exchange also affects the outside market. In addition, a transitional reinsurance program (id. 18061) links the inside and outside markets by providing funding to individual-market plans that enroll the highest cost individuals. And the temporary risk corridor program (id. 18062), limits an insurers gains and losses inside and outside the exchanges. See generally Centers for Medicare & Medicaid Services, Reinsurance, Risk Corridors, and Risk Adjustment Final Rule (2012), http://www.cms.gov/cciio/resources/files/downloads/3rs-final-rule.pdf.
42

The ACA guards against instability in the non-exchange individual markets through the shared responsibility payment obligation, which can be avoided by purchasing insurance on these outside markets, and by providing for the sharing of risk among those outside markets and the exchanges, as just discussed. 34

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CONCLUSION The judgment of the district court should be affirmed. Dated: February 17, 2014 Joseph Miller jmiller@ahip.org Julie Simon Miller jumiller@ahip.org AMERICAS HEALTH INSURANCE PLANS 601 Pennsylvania Avenue, N.W. South Building, Suite 500 Washington, DC 20004 (202) 778-3200 Respectfully submitted, s/ Andrew J. Pincus Andrew J. Pincus apincus@mayerbrown.com Brian D. Netter bnetter@mayerbrown.com MAYER BROWN LLP 1999 K Street, N.W. Washington, DC 20006 (202) 263-3000

Counsel for Americas Health Insurance Plans

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CERTIFICATE OF COMPLIANCE Pursuant to Fed. R. App. P. 32(a)(7)(C), I hereby certify that this brief complies with the type-volume limitation of Fed. R. App. P. 29(d) and 32(a)(7)(B) because it contains 6,066 words, excluding the parts exempted by Fed. R. App. P. 32(a)(7)(B)(iii) and Cir. R. 32(a)(1). I further certify that this brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because the brief was prepared in 14-point Century Schoolbook font using Microsoft Word.

Dated: February 17, 2014

/s/ Andrew J. Pincus Andrew J. Pincus

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CERTIFICATE OF SERVICE I hereby certify, pursuant to Fed. R. App. P. 25(c) and Cir. R. 25(c), that on February 17, 2014, the foregoing was electronically filed with the Clerk of the Court using the CM/ECF system, which will send a notification to the attorneys of record in this matter who are registered with the Courts CM/ECF system.

Dated: February 17, 2014

/s/ Andrew J. Pincus Andrew J. Pincus

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ORAL ARGUMENT SCHEDULED FOR MARCH 25, 2014 No. 14-5018

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA

JACQUELINE HALBIG, ET AL., Appellants, v. KATHLEEN SEBELIUS, SECRETARY OF HEALTH AND HUMAN SERVICES, ET AL., Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA (NO. 13-623 (PLF))

BRIEF OF AMICI CURIAE AARP AND NATIONAL HEALTH LAW PROGRAM IN SUPPORT OF APPELLEES URGING AFFIRMANCE

Kelly Bagby* *Counsel of Record Iris Y. Gonzlez AARP Foundation Litigation Michael Schuster AARP 601 E St., NW Washington, DC 20049 (202) 434-2060 kbagby@aarp.org igonzalez@aarp.org

Martha Jane Perkins National Health Law Program 101 E. Weaver Street, Suite F-7 Carrboro, NC 27510 (919) 968-6308 (x101) perkins@healthlaw.org

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CERTIFICATE OF PARTIES, RULINGS AND RELATED CASES A. Parties and Amici Plaintiffs-appellants are Jacqueline Halbig; David Klemencic; Carrie Lowery; Sarah Rumpf; Innovare Health Advocates; GC Restaurants SA, LLC; Olde Englands Lion & Rose, LTD; Olde Englands Lion & Rose at Castle Hills, LTD; Olde Englands Lion & Rose Forum, LLC; Olde Englands Lion & Rose at Sonterra, LTD; Olde Englands Lion & Rose at Westlake, LLC; and Community National Bank. Defendants-appellees are the U.S. Department of Health and Human Services (HHS); HHS Secretary Kathleen Sebelius; the U.S. Department of the Treasury; Treasury Secretary Jacob J. Lew; the Internal Revenue Service (IRS), and IRS Commissioner John Koskinen. The following amici are listed on the Courts docket: Americas Health Insurance Plans; Pacific Research Institute; AARP; National Federation of Independent Business Legal Center; Cato Institute; American Hospital Association; Jonathan Adler; Members of Congress; Michael Cannon; State Officials; Public Health Deans, Chairs, and Faculty; American Cancer Society; American Cancer Society Cancer Action Network; American Heart Association; American Diabetes Association; Economic Scholars; States of Oklahoma, Alabama, Georgia, West Virginia, Nebraska, South Carolina, Kansas, and i

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Michigan; Consumers Research; Galen Institute; Members of Congress John Cornyn, Ted Cruz, Orrin G. Hatch, Mike Lee, Rob Portman, Marco Rubio, Dave Camp, and Darrell Issa. Families USA and the Commonwealth of Virginia participated as amici in the district court. B. Ruling Under Review Plaintiffs have appealed the final judgment entered in the governments favor on January 15, 2014. The order (Docket Entry #66) and accompanying opinion (Docket Entry #67) were issued by the Honorable Paul L. Friedman in No. 1:13-cv-00623-PLF (D.D.C.). C. Related Cases This case has not previously been before this Court or any other court. We are unaware of any related cases within the meaning of Circuit Rule 28. Respectfully submitted, /s/ Kelly Bagby Kelly Bagby Counsel of Record for Amici

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CORPORATE DISCLOSURE STATEMENTS The Internal Revenue Service has determined that AARP is organized and operated exclusively for the promotion of social welfare pursuant to Section 501(c)(4) (1993) of the Internal Revenue Code and is exempt from income tax. AARP is also organized and operated as a non-profit corporation pursuant to Title 29 of Chapter 6 of the District of Columbia Code 1951. Other legal entities related to AARP include AARP Foundation, AARP Services, Inc., Legal Counsel for the Elderly, Experience Corps, d/b/a, AARP Experience Corps, AARP Insurance Plan, also known as the AARP Health Trust, and AARP Financial. AARP has no parent corporation, nor has it issued shares or securities. Dated: February 17, 2014. Respectfully Submitted, /s/Kelly Bagby___________ Kelly Bagby

Pursuant to Fed. R. App. P. 26.1, the undersigned counsel for Amicus Curiae National Health Law Program states that there is no parent corporation, or publicly held company that owns 10% or more of the stock of the National Health Law Program. Date: February 17, 2014. Respectfully submitted, /s/ Jane Perkins Jane Perkins

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TABLE OF CONTENTS CERTIFICATE OF PARTIES, RULINGS, AND RELATED CASES ................. i A. Parties and Amici................................................................................... i B. Ruling Under Review ........................................................................... ii C. Related Cases........................................................................................ ii CORPORATE DISCLOSURE STATEMENTS ................................................. iii TABLE OF AUTHORITIES ............................................................................. vii GLOSSARY ...................................................................................................... xii STATUTES AND REGULATIONS ................................................................. xii STATEMENT OF IDENITY, INTEREST AND AUTHORITY TO FILE .....................................................................................................................1 SUMMARY OF ARGUMENT ............................................................................2 ARGUMENT .......................................................................................................4 I. Before the ACA, Health Insurance Was Unavailable or Unaffordable to Millions of Pre-Medicare Adults.......................................4 A. Employer-Sponsored Health Insurance Was Frequently Unavailable or Unaffordable..................................................................5 B. Health Insurance on the Individual Private Market Was Unaffordable or Inadequate....................................................................6 C. Medicaid or Medicare Was Unavailable ................................................7 II. The Lack of Adequate and Affordable Health Insurance Among Pre-Medicare Adults Results in Worse Health Outcomes and Death, and Negatively Impacts Financial Stability, the Health Care System, Federal Programs, and the National Economy.......................8 iv

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A. Uninsured Pre-Medicare Adults Die or Suffer Worse Health Outcomes at Greater Costs to Them and to the Health Care System ...................................................................................................8 B. When Uninsured Older Adults Become Eligible for Medicare, They Become Healthier But Are More Costly to the Medicare System............................................................................10 C. Lack of Adequate, Affordable Health Insurance Among PreMedicare Adults Profoundly Affects Their Financial Stability and the National Economy.....................................................12 III. The Central and Overarching Purpose of the ACA is to Make Health Insurance, and Thus Health Care, Affordable to All.......................14 A. Congress Clearly Expressed the Purpose of the ACA in Its Text .....................................................................................................15 B. Congress Chosen Policies Were Specifically Designed to Work Together to Achieve the Goal of Making Health Insurance Accessible and Affordable to All .........................................16 1. The ACA Encourages Employers to Offer Adequate and Affordable Health Insurance ...........................................................16 2. The ACA Encourages Individual Participation in, and Improves Access to, the Individual Market .....................................18 3. The ACA Makes Health Insurance in the Individual Market More Affordable.................................................................19 4. The ACA Encourages States to Expand Medicaid Coverage for Low-Income Adults Who May be Exempt From the Individual Mandate..........................................................20 IV. Premium Tax Credits are Essential to the Acts Primary Purpose Achieving Access and Affordability for All ............................21 Premium Tax Credits Were Meant to Incentivize Individuals, Not States .................................................................................................23 v

V.

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VI.

Eliminating the Availability of Premium Tax Credits in Thirty Four States Will Cannibalize the Acts Key Reforms................................24

CONCLUSION ..................................................................................................25 CERTIFICATE OF SERVICE............................................................................27 CERTIFICATE OF COMPLIANCE ..................................................................28

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TABLE OF AUTHORITIES1 Cases Halbig v. Sebelius, Civ. No. 13623 (PLF), 2014 U.S. Dist. LEXIS 4853 (D.D.C. Jan. 15, 2014) .....................................................................16 *Natl Fedn of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012)....................15, 20 *United Steelworkers v. Weber, 443 U.S. 193 (1979) .........................................26 Statutes, Rules and Regulations Annual Update of the HHS Poverty Guidelines, 78 Fed. Reg. 5,182 (Jan. 24, 2013) ..........................................................................................22 Internal Revenue Code 26 U.S.C. 36B(b)(3)(A) .........................................................................19 26 U.S.C. 36B(b)(3)(A)(i)......................................................................23 26 U.S.C. 36B(c)(2)(C)(i)(II).................................................................17 26 U.S.C. 36B(f) ....................................................................................23 26 U.S.C. 45R........................................................................................17 26 U.S.C. 4980H(a) ...............................................................................17 26 U.S.C. 4980H(b)-(d) .........................................................................17 26 U.S.C. 5000A(a) ...............................................................................18 26 U.S.C. 5000A(b) ...............................................................................19 26 U.S.C. 5000A(b)2 .............................................................................23 26 U.S.C. 5000A(c)(2)...........................................................................22 26 U.S.C. 5000A(c)(2)(B)......................................................................18 26 U.S.C. 5000A(c)(3)...........................................................................18 26 U.S.C. 5000A(e)(1)...........................................................................20 Patient Protection and Affordable Care Act 42 U.S.C. 300gg(a) ..................................................................................7 42 U.S.C. 300gg(a)(1)(A)-(B)................................................................18 42 U.S.C. 300gg(a)(1)(A)(iii) ............................................................7, 18 42 U.S.C. 300gg-1 ...................................................................................7 42 U.S.C. 300gg-1(a) .............................................................................18
1

Authorities on which we principally rely are marked with asterisks. vii

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42 U.S.C. 300gg-2 ...................................................................................7 42 U.S.C. 300gg12...............................................................................18 42 U.S.C. 1396a(a)(10)(A)(i)(VIII)........................................................20 42 U.S.C. 1396d(y) ................................................................................20 42 U.S.C. 18001.....................................................................................15 42 U.S.C. 18031(b)(1)(B) ......................................................................17 42 U.S.C. 18071(c)(2)............................................................................19 42 U.S.C. 18082(c) ................................................................................23 *42 U.S.C. 18091(2)(D)-(H) ..................................................................15 *42 U.S.C. 18091(2)(G)...................................................................16, 19 Legislative Materials H.R. Rep. No. 111-4443, vol. 1 (2010) ...............................................................19 The Instability of Health Coverage in America: Hearing Before the Subcomm. on Health of the H. Comm. on Ways & Means, 110th Cong. 50 (2008)........................................................................................11 155 Cong. Rec. S 9553 (Sept. 17, 2009), 2010 Bill Tracking S. 1679 (LEXIS)....................................................................................................23 Miscellaneous Elizabeth Abbott et al., Implementing the Affordable Care Acts Insurance Reforms: Consumer Recommendations for Lawmakers and Regulators (2012) .............................................................6 Ranee Chattergee et al., Screening for Diabetes and Prediabetes Should Be Cost-Saving in Patients at High Risk, 36 Diabetes Care 1 (2013)............................................................................................11 Gary Claxton et al., Kaiser Family Found., State-by-State Estimates of the Number of People Eligible for Premium Tax Credits Under the Affordable Care Act (2013)...........................................................21, 24 Sara R. Collins et al., The Commonwealth Fund, Help on the Horizon: How the Recession Has Left Millions of Workers Without Health Insurance, and How Health Reform Will Bring Relief (2011) .......................................................................................12, 14 viii

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Sara R. Collins et al., The Commonwealth Fund, Realizing Health Reforms Potential: Adults Ages 50-64 and the Affordable Care Act of 2010 (2010) ......................................................................................................5, 6 Cong. Budget Office, Insurance Coverage Provisions of the Affordable Care ActCBOs February 2014 Baseline (2014)..................21 Cong. Budget Office, Labor Market Effects of the Affordable Care Act: Updated Estimates, Appendix C (2014) .............................................13 Keziah Cook et al., Does Major Illness Cause Financial Catastrophe? 45 Health Servs. Res. 418 (2010)..............................................................14 Cynthia Cox et al., Kaiser Family Found., An Early Look at Premiums and Insurer Participation in Health Insurance Marketplaces, 2014 (2013) ..............................................................................................22 Robert W. Fairlie et al., Is Employer-Based Health Insurance a Barrier to Entrepreneurship? (Rand. Corp., Working Paper No. WR-637-1-EMKF, 2010)..........................................................................13 Sid Groememan, AARP, Staying Ahead of the Curve 2007: The AARP Work and Career Study (2008) .................................................................13 John Holahan et al., Access and Affordability on the Verge of Health Reform, Urban Inst. (Jan. 28, 2014), http://hrms.urban.org/ briefs/access-and-affordability-on-the-verge.html.......................................6 Inst. of Med. (IOM), Americas Uninsured Crisis: Consequences for Health and Health Care (2009) ................................................................10 Richard W. Johnson et al., AARP Pub. Policy Inst., Older Workers on the Move: Recareering in Later Life (2009)..............................................12 Kaiser Commn on Medicaid & the Uninsured, Key Facts about the Uninsured Population (2013) .....................................................................4 Kaiser Family Found., Status of State Action on the Medicaid Expansion Decision, 2014, http://kff.org/health-reform/stateix

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indicator/state-activity-around-expanding-medicaid-under-theaffordable-care-act/...................................................................................20 Medicare at a Glance, Kaiser Family Found. (Nov. 14, 2012), http://kff.org/medicare/fact-sheet/medicare-at-a-glance-factsheet/ ..........................................................................................................8 J. Michael McWilliams et al., Use of Health Services by Previously Uninsured Medicare Beneficiaries, 347 New Eng. J. Med. 143 (2007) .......................................................................................................11 Megan Multack, State Preventive Care Ranking For Midlife Adults, AARP Pub. Policy Inst., http://www.aarp.org/research /ppi/preventive-services.html#/map/men_preventative _services?cmp=RDRCT-STPRVCRNKG_JUL09_013 ..............................9 Natl Colorectal Cancer Roundtable, Increasing Colorectal Cancer Screening Saving Lives and Saving Dollars: Screening 50 to 64 Year-Olds Reduces Cancer Costs to Medicare (2007) .........................11 Lynn Nonnemaker, AARP Pub. Policy Inst., Beyond Age Rating: Spreading Risk in Health Insurance Markets (2009)...............................6, 7 Karen Pollitz et al., Kaiser Family Found., Medical Debt Among People With Health Insurance (2014) .......................................................13 Sara E. Rix, AARP Pub. Policy Inst., The Employment Situation, December 2013: Disappointing Year-End Numbers for Older Workers (2014) ...........................................................................................5 Jeannine S. Schiller et al., U.S. Dept of Health & Human Servs., Summary Health Statistics for U.S. Adults: National Health Interview Survey, 2010 (2012) ....................................................................9 *Gerry Smolka et al., AARP Pub. Policy Inst., Effect of Health Reform for 50-to 64-Year-Olds (2013).............................. 4, 5, 8, 17, 19, 20 *Gerry Smolka et al., AARP Pub. Policy Inst., Health Care Reform: Whats at Stake for 50- to 64-Year Olds? (2009) ............................ 4, 14, 18 x

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State Decisions for Creating Health Insurance Marketplaces, 2014, Kaiser Family Found., http://kff.org/health-reform/stateindicator/health-insurance-exchanges/ ................................................21, 24 Kevin T. Stroupe et al., Chronic Illness and Health Insurance-Related Job Lock, 20 J. Policy Analysis & Mgmt. 525 (2000) ...............................12 U.S. Govt Accountability Office, Medicare: Continuous Insurance Before Enrollment Associated With Better Health and Lower Program Spending (2013).........................................................................10 U.S. Dept of Health & Human Servs., At Risk: Pre-Existing Health Conditions Could Affect 1 in 2 Americans (2011) .......................................7 U.S. Dept of Health & Human Servs., Ctrs. for Disease Control & Prev., Chronic Diseases: The Power to Prevent, the Call to Control: At a Glance 2009 (2009) ..............................................................9 U.S. Dept of Health & Human Servs., Health Insurance Marketplace: February Enrollment Report for the Period: October 1, 2013 -- February 1, 2014 (2014) .......................................21, 22 Brian W. Ward & Jeannine S. Schiller, Prevalence of Multiple Chronic Conditions among US Adults: Estimates from the National Health Interview Survey, 10 Preventing Chronic Disease 1 (2013) .........................................................................................8

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GLOSSARY ACA or Act CHIP FPL IOM NHeLP SHOP Patient Protection and Affordable Care Act Childrens Health Insurance Program Federal Poverty Level Institute of Medicine National Health Law Program Small Business Health Options Program

STATUTES AND REGULATIONS All applicable statutes and regulations are contained in the Brief for Appellants.

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STATEMENT OF IDENITY, INTEREST AND AUTHORITY TO FILE AARP is a nonprofit, nonpartisan organization with a membership that strengthens communities and fights for the issues that matter most to families such as health care, employment, income security, retirement planning, affordable utilities and protection from financial abuse. Since its founding in 1958, AARP has advocated for affordable, accessible health care, as well as improved quality of care and controlled health care costs. In response to the growing number of older people who went without health care services or faced financial burdens due to the unaffordability and unavailability of insurance and other health care costs, AARP sought legislative reforms that would, among other objectives: guarantee access to affordable coverage for people ages 50 to 64 in the individual market who have faced unaffordable insurance due to their age, pre-existing conditions, or health status; and help low- to moderate-income older adults so that people who try to save for retirement may receive assistance with premiums and other health care costs. The National Health Law Program (NHeLP) protects and advances the health rights of low-income and underserved individuals and families. For over forty years, NHeLP has worked to help individuals and advocates overcome barriers to health care, including lack of affordable services. NHeLP and AARP

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have supported the Patient Protection and Affordable Care Act (ACA or the Act) and the access to affordable health insurance it provides for millions of individuals. The availability of premium assistance tax credits under the ACA is critical to affordability and thus access to needed health care services. As such, AARP and NHeLP are interested in the issues raised by this case. NHeLP and AARP write to provide the Court additional information about the purpose of the ACA, how its statutory provisions work together to achieve its purpose, and how the Appellants theory of statutory construction squarely contravenes the Acts purpose and harms the vulnerable people served by our respective organizations, in particular older adults. The effect that the availability of premium tax credits will have on older adults ability to obtain adequate and affordable health insurance has not been addressed by the Parties or other amici. SUMMARY OF ARGUMENT The overarching purpose of the ACA is to address the lack of adequate and affordable health care a complex social and economic problem that affects all, but can be especially challenging to those ages 50 to 64 (hereinafter pre-Medicare adults). Pre-Medicare adults have faced special difficulties in obtaining adequate and affordable health insurance in the private and employer-based markets and were not eligible for publicly funded insurance.

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Prior to the passage of the ACA, uninsured pre-Medicare adults were denied coverage based on preexisting conditions or offered costly policies that excluded coverage for needed care. Even without preexisting conditions, insurance premiums for older adults were up to seven times higher than those for younger adults. Annual and lifetime caps which were easily exceeded by treatment for a single illness such as cancer, heart disease, or diabetes meant that many older adults either went without treatment until they became eligible for Medicare or incurred financially ruinous medical debt. The lack of insurance among this preMedicare group resulted in worse health outcomes and death, and it negatively impacted personal finances, health care spending, the national economy, and federal programs such as Medicare. The ACA reflects Congress chosen policies to address these problems. Reflecting a basic understanding that affordability and accessibility of health insurance in the private individual market required a larger and more diversified insurance risk pool, key reform provisions of the ACA are designed to encourage people to obtain health insurance and to reduce barriers to access. Among these interconnected reforms is the availability of federal tax assistance with premium payments to individuals who buy insurance on the Exchanges. Appellants argument that Congress intended to provide premium tax credits only to individuals in states that established their own Exchanges is inconsistent 3

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with the text of the Act2 and is directly at odds with its purpose, as reflected in its text, structure, and key reform provisions. Appellants interpretation of just one phrase in the Act if accepted will make insurance unaffordable in the 34 states with federally-run Exchanges, harming low- to moderate-income residents of those states. It would also render meaningless other key provisions of the ACA designed to increase access to affordable health insurance. ARGUMENT I. Before the ACA, Health Insurance Was Unavailable or Unaffordable to Millions of Pre-Medicare Adults. Before enactment of the ACA, the number of uninsured Americans aged 50 to 64, who were not yet eligible for Medicare, was growing at an alarming rate increasing from 5.2 million in 2000, to 7.1 million in 2007, and then to 9.3 million in 2012. See Gerry Smolka et al., AARP Pub. Policy Inst., Health Care Reform: Whats at Stake for 50- to 64-Year Olds? 1 (2009) [hereinafter Whats at Stake]; and Gerry Smolka et al., AARP Pub. Policy Inst., Effect of Health Reform for 50-to 64-Year-Olds 1 (2013) [hereinafter Effect of Health Reform]. Most uninsured preMedicare adults did not have access to affordable employer-sponsored insurance, could not afford private insurance on the individual market, or did not qualify for publicly funded insurance programs. See Kaiser Commn on Medicaid & the

AARP and NHeLP adopt and incorporate by reference Appellees arguments regarding statutory construction of the ACA. 4

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Uninsured, Key Facts about the Uninsured Population 2 (2013). The consequences for these individuals, their families, and the nation were and can be devastating. A. Employer-Sponsored Health Insurance Was Frequently Unavailable or Unaffordable. For many pre-Medicare adults, employer-sponsored insurance was not available or was unaffordable. In 2012, an estimated 11 million working preMedicare adults did not have employer-sponsored insurance. Effect of Health Reform, supra, at 2. Of these, less than half were able to obtain coverage from another source. Id. The unavailability of employer-sponsored insurance for preMedicare adults was driven, in part, by the economic recession, during which this group experienced rising rates of unemployment. See Sara R. Collins et al., The Commonwealth Fund, Realizing Health Reforms Potential: Adults Ages 50-64 and the Affordable Care Act of 2010 2 (2010) [hereinafter Realizing Health Reforms Potential]. Pre-Medicare adults went without employer-sponsored insurance for longer than their younger counterparts because, on average, they remained unemployed for longer periods of time. Id. For example, as of December 2013, pre-Medicare adults remained unemployed for an average of 11.6 weeks longer than their younger counterparts. See Sara E. Rix, AARP Pub. Policy Inst., The Employment Situation, December 2013: Disappointing Year-End Numbers for Older Workers 4 (2014). 5

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B. Health Insurance on the Individual Private Market Was Unaffordable or Inadequate. Prior to the ACA reforms, many pre-Medicare adults could not afford adequate insurance policies on the private individual market. In 2007, 61% of preMedicare adults who tried to purchase health insurance on the private market found it unaffordable. See Realizing Health Reforms Potential, supra, at 5, ex. 4. Among those who purchased insurance, 60% reported difficulty paying medical bills or accessing services due to costs so that they were effectively underinsured. Id. at 6, ex. 5. One 2013 study found that among adults with private insurance, 16% had problems paying or were unable to pay medical bills. John Holahan et al., Access and Affordability on the Verge of Health Reform, Urban Inst. tbl. 2 (Jan. 28, 2014), http://hrms.urban.org/briefs/access-and-affordability-on-the-verge.html. High health insurance premiums and out-of-pocket medical expenses for older adults were linked to insurance underwriting policies that allowed insurers to deny coverage or offer very limited policies to people with pre-existing conditions, charge high premiums based on age alone, or offer policies with high cost sharing. Elizabeth Abbott et al., Implementing the Affordable Care Acts Insurance Reforms: Consumer Recommendations for Lawmakers and Regulators 10 (2012); Lynn Nonnemaker, AARP Pub. Policy Inst., Beyond Age Rating: Spreading Risk in Health Insurance Markets 3, tbl. 1 (2009) [hereinafter Beyond Age Rating]. PreMedicare adults were disproportionately affected by these underwriting policies 6

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because 48 to 86% of people ages 55 to 64 had pre-existing health conditions. U.S. Dept of Health & Human Servs., At Risk: Pre-Existing Health Conditions Could Affect 1 in 2 Americans 3, fig. 1 (2011). ACA reforms prohibit or limit these practices. See, e.g., 42 U.S.C. 300gg(a) (2012) (premiums may not be based on health status); 42 U.S.C. 300gg-1 (2012) (guaranteed issue in individual and group markets); 42 U.S.C. 300gg-2 (2012) (guaranteed renewal). Yet, challenges remain for pre-Medicare adults shopping for health insurance in the private market because they will still face higher premiums than their younger counterparts. See 42 U.S.C. 300gg(a)(1)(A)(iii) (age rating ratio of 3:1 is still permitted). As a group, however, they are no better able to afford higher premiums than other age groups. Indeed, an analysis of the March 2008 Current Population Survey revealed that the median income for the uninsured ages 50 to 64 was roughly equal to the median income of their younger counterparts. Beyond Age Rating, supra, at 3, tbl. 1. Federal assistance with premiums and out-of-pocket costs under their plans will be critical to insurance affordability and access for low- to moderate-income preMedicare adults. C. Medicaid or Medicare Was Unavailable. The majority of those ages 50 to 64 did not qualify for publicly funded insurance until they became eligible for Medicare at age 65. In 2012, only 17% of 7

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Medicare beneficiaries qualified due to disability rather than age. Medicare at a Glance, Kaiser Family Found. (Nov. 14, 2012), http://kff.org/medicare/factsheet/medicare-at-a-glance-fact-sheet/. They also did not qualify for other publicly funded insurance: of the 11 million older workers in 2012 who did not have employer-based health insurance, only 10% had Medicaid coverage and only 8% had some other public coverage. Effect of Health Reform, supra, at tbl. 2. Even if all states now expanded Medicaid eligibility to include adults who have incomes at or below 138% of poverty, less than one third of the 13.8 million pre-Medicare adults who were on the individual health insurance market or uninsured in 2012 would be eligible for Medicaid. Id. at 7-8, fig. 2. II. The Lack of Adequate and Affordable Health Insurance Among PreMedicare Adults Results in Worse Health Outcomes and Death, and Negatively Impacts Financial Stability, the Health Care System, Federal Programs, and the National Economy. A. Uninsured Pre-Medicare Adults Die or Suffer Worse Health Outcomes at Greater Costs to Them and to the Health Care System. As people age, they are more likely to experience chronic health conditions, resulting in worse health outcomes and increased mortality for the uninsured. The prevalence of multiple chronic conditions is greater in adults ages 45 to 64 than in younger adults and, for this older population, it increased significantly between 2001 and 2010. Brian W. Ward & Jeannine S. Schiller, Prevalence of Multiple Chronic Conditions among US Adults: Estimates from the National Health 8

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Interview Survey, 10 Preventing Chronic Disease 1, 5 (2013). For example, adults ages 45 to 64 suffer from heart disease at a rate three times higher than younger adults. Jeannine S. Schiller et al., U.S. Dept of Health & Human Servs., Summary Health Statistics for U.S. Adults: National Health Interview Survey, 2010 19 (2012). The Centers for Disease Control and Prevention estimate that chronic conditions are the leading cause of death and disability and that treating such conditions accounts for 75% of health care spending. U.S. Dept of Health & Human Servs., Ctrs. for Disease Control & Prev., Chronic Diseases: The Power to Prevent, the Call to Control: At a Glance 2009 2 (2009). This tremendous toll on human life and on health care resources can be reduced, as these conditions are preventable and can be effectively controlled. Id. To reduce this toll, people must have access to preventive services for early awareness of risk factors, diagnosis, and treatment. As explained below, however, being uninsured is a barrier to seeking such services. Uninsured pre-Medicare adults are about three times less likely to be up-todate with clinical preventive services than those who are insured. See Megan Multack, State Preventive Care Ranking For Midlife Adults, AARP Pub. Policy Inst., http://www.aarp.org/research/ppi/preventive-services.html#/map/men_ preventative_services?cmp=RDRCT-STPRVCRNKG_JUL09_013 (last visited Feb. 13, 2014). Uninsured adults are less likely to be aware of heart disease and its 9

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risk factors and to have these conditions treated or well-controlled, and are more likely to have cancers diagnosed and treated in advanced stages. Inst. of Med. (IOM), Americas Uninsured Crisis: Consequences for Health and Health Care 72-83 (2009) (comparing uninsured adults ages 18 to 64 to their insured counterparts). Consequently, they have higher mortality rates. Id. Additionally, the Institute of Medicine (IOM) found that uninsured individuals with chronic illnesses such as hypertension, diabetes, cancer, and heart disease suffer worse health outcomes due to delayed diagnoses and delayed treatment, and thus would most likely benefit from health insurance. Id. at 74-80. B. When Uninsured Older Adults Become Eligible for Medicare, They Become Healthier But Are More Costly to the Medicare System. The IOM found that when previously uninsured older adults gain Medicare coverage at age 65, they experience improved health outcomes and a decreased risk of dying when hospitalized for serious conditions. Id. at 72. These findings suggest that pre-Medicare adults have significant unmet health needs before they become old enough to qualify for Medicare, the point at which they gained increased access to prescription drugs and other medical treatments to control their illnesses. Id. at 77. As a result, the treatment of the previously uninsured is substantially more costly to the Medicare system than treatment of those who were previously insured. See U.S. Govt Accountability Office, Medicare: Continuous Insurance Before Enrollment Associated With Better Health and Lower Program 10

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Spending 9 (2013) (finding that the previously uninsured had 35% more program spending in the first year of Medicare enrollment than those previously insured continuously for six years); see also J. Michael McWilliams et al., Use of Health Services by Previously Uninsured Medicare Beneficiaries, 347 New Eng. J. Med. 143, 151 (2007). Obtaining preventive services and medical treatments earlier reduces the cost of drugs and medical treatments for individuals enrolled in Medicare because conditions are diagnosed, are at less advanced stages, and/or are better controlled. See The Instability of Health Coverage in America: Hearing Before the Subcomm. on Health of the H. Comm. on Ways & Means, 110th Cong. 50 (2008) (statement of Dr. John Z. Ayanian). For example, one study followed adults ages 50 to 64 until they reached the age of 75 and found that, if they received screening for colorectal cancer before enrolling in Medicare, the program could realize between $7.7 and $21.7 billion in savings related to their cancer treatment. See Natl Colorectal Cancer Roundtable, Increasing Colorectal Cancer Screening Saving Lives and Saving Dollars: Screening 50 to 64 Year-Olds Reduces Cancer Costs to Medicare 2-3 (2007). Similarly, diabetes screenings for people who are ages 55 and older and have at least one risk factor could reduce diabetes-related costs of care by 17.1%. Ranee Chattergee et al., Screening for Diabetes and Prediabetes Should Be Cost-Saving in Patients at High Risk, 36 Diabetes Care 1, 4 tbl. 2 (2013). 11

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C. Lack of Adequate, Affordable Health Insurance Among PreMedicare Adults Profoundly Affects Their Financial Stability and the National Economy. The lack of adequate, affordable health insurance has a profound effect on the financial stability of pre-Medicare adults and, in turn, on the national economy restricting labor market mobility and causing individuals to incur medical care costs that deplete retirement savings and contribute to debt and bankruptcy. Many pre-Medicare workers who rely on employer-sponsored health insurance do not leave their jobs, switch jobs, reduce their hours, or retire for fear that they will lose and be unable to regain health benefits. See Richard W. Johnson et al., AARP Pub. Policy Inst., Older Workers on the Move: Recareering in Later Life 10, 18 (2009) (nearly a quarter of career changers lose health benefits when they change jobs; only about 10 percent gain insurance); see also Sara R. Collins et al., The Commonwealth Fund, Help on the Horizon: How the Recession Has Left Millions of Workers Without Health Insurance, and How Health Reform Will Bring Relief 3 (2011) [hereinafter Help on the Horizon] (three fifths of adults ages 18 to 64 who lost a job with health benefits in 2010 became uninsured). Chronically ill workers, who are more likely to be older workers, for example, are 40% less likely to leave their job if they have employer-sponsored health insurance compared to those who do not rely on such coverage. Kevin T. Stroupe et al., Chronic Illness and Health Insurance-Related Job Lock, 20 J. Policy Analysis & Mgmt. 525, 525 (2000).

12

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Older workers who turn 65 and are eligible for Medicare but must maintain health coverage for a younger spouse or dependent child are also deterred from retiring or reducing their work hours. See Sid Groememan, AARP, Staying Ahead of the Curve 2007: The AARP Work and Career Study 23 (2008). Consequently, the nations most experienced and valuable workers are discouraged from redirecting their talents where they are most needed, including to entrepreneurship. See Robert W. Fairlie et al., Is Employer-Based Health Insurance a Barrier to Entrepreneurship? 45-47 (Rand. Corp., Working Paper No. WR-637-1-EMKF, 2010) (finding that the threat of losing employer-based coverage prevents people from leaving jobs to start their own businesses). The Congressional Budget Office agrees that the availability of affordable health insurance will increase labor market mobility, as it recently projected a decrease in the number of work hours inversely related to the availability of subsidies on the Exchanges. See Cong. Budget Office, Labor Market Effects of the Affordable Care Act: Updated Estimates, Appendix C 122 (2014). People with inadequate or no health insurance had health care costs that were financially debilitating. See, e.g., Karen Pollitz et al., Kaiser Family Found., Medical Debt Among People With Health Insurance 12 (2014) (profiling a 51year-old man with household income below 400% of FPL and high insurance premiums that contributed to his bankruptcy). One study estimated that 29 million 13

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people had used all of their savings on medical expenses. Help on the Horizon, supra, at 12. Another 22 million were unable to pay for basic necessities such as rent, food, and utilities due to medical bills. Id. More than two-thirds of older adults who participated in the individual insurance market paid more than 10% of their income to medical costs. Whats at Stake, supra, at 2, tbl. 1. The median preMedicare household with a newly ill and uninsured member lost between 30 and 50% of its assets. Keziah Cook et al., Does Major Illness Cause Financial Catastrophe? 45 Health Servs. Res. 418, 419 (2010). These health-care-related financial burdens severely hampered retirement security. Not only are individuals negatively affected by difficulty paying medical bills, but the national economy is hurt as well. When lower-income pre-Medicare adults retire without savings and find they must turn to government assistance to meet housing, food, and utility needs, this affects national budget deficits. Additionally, consumer credit is less available and/or more expensive due to excessive medical debt and bankruptcies, and businesses suffer in turn. III. The Central and Overarching Purpose of the ACA is to Make Health Insurance, and Thus Health Care, Affordable to All. The central and overarching purpose of the ACA was to address the complex problems described above by making health insurance, and thus health care, accessible and affordable to all. Congress clearly expressed this purpose in the text of the Act. Moreover, Congress made policy choices in the Act that were clearly 14

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intended to effectuate this purpose and thereby reduce the staggering burdens that the lack of affordable insurance imposes on the uninsured, the health care system, the national economy, and federal spending programs. Congress understood that health insurance affordability could only be achieved by significantly increasing and diversifying the insured risk pool. Thus, many key provisions of the ACA, including those that authorize premium tax credits, are designed to encourage more Americans of varying health statuses to obtain health insurance. Appellants interpretation of a single phrase in one provision of the Act, which is only used to calculate the amount of the premium tax credit, by contrast, would have the opposite effect: discouraging participation in the insurance marketplace and raising costs. A. Congress Clearly Expressed the Purpose of the ACA in Its Text. The purpose of the ACA, as expressed by Congress in its text, is to achieve near-universal coverage and lower health insurance premiums. 42 U.S.C. 18091(2)(D)-(H) (2012); see also Natl Fedn of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2580 (2012) (purpose of the Act is to increase the number of Americans covered by health insurance and decrease the cost of health care). The name of the Actthe Patient Protection and Affordable Care Actreflects the purpose of the legislation, as do the names of the Titles of the ACA. 42 U.S.C. 18001 (2012). As the District Court noted, Title I of the ACA is titled Quality,

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Affordable Health Care for All Americans. Halbig v. Sebelius, Civ. No. 13623 (PLF), 2014 U.S. Dist. LEXIS 4853, at *53 (D.D.C. Jan. 15, 2014). B. Congress Chosen Policies Were Specifically Designed to Work Together to Achieve the Goal of Making Health Insurance Accessible and Affordable to All. Congress chose to accomplish near universal coverage and lower health insurance premiums through a series of statutory requirements that, working together, make coverage accessible and affordable to everyone. See 42 U.S.C. 18091(2)(G). The ACA reduces the number of uninsured by establishing incentives for individuals, states, and employers to participate in the insurance markets and provide insurance coverage. The Act also increases access to health insurance in the individual market through guaranteed issue provisions, rating limitations, and the individual mandate. Furthermore, these provisions work to improve affordability because they keep premiums down by ensuring that the insurance risk pool is not only larger, but also diverse, including individuals of varying health statuses. Finally, the ACA makes insurance more affordable for low- to moderate-income individuals by providing tax credits to subsidize the cost of premiums and by providing assistance with out-of-pocket costs. 1. The ACA Encourages Employers to Offer Adequate and Affordable Health Insurance. Employer-based insurance is the traditional backbone of the American health insurance system where most adults purchase coverage. Yet, in 2012, 10.8 16

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million older workers did not have access to employer-based insurance, and 5.9 million of those workers were not able to obtain coverage from another source. Effect of Health Reform, supra, at 2, tbl. 2. The ACA addresses this problem by encouraging employers to offer health insurance. The Act imposes a shared responsibility requirement on large employers, under which they face a tax penalty if they do not offer adequate and affordable insurance to their full time employees. See 26 U.S.C. 4980H(a) (2012) (penalizing large employers who do not offer affordable minimum coverage to employees); 26 U.S.C. 36B(c)(2)(C)(i)(II) (2012) (employer-sponsored coverage is unaffordable if the employees share of the premium for self-only care is more than 9.5 percent of his or her household income); 26 U.S.C. 4980H(b)-(d) (employer is penalized after verification that it did not offer insurance that meets the affordability and adequacy standards defined by law). Small employers are also encouraged to provide health benefits to their employees through the Small Business Health Options Program (SHOP), which is designed to increase their buying power on the group market. 42 U.S.C. 18031(b)(1)(B), see also 26 U.S.C. 45R (2012) (small businesses may be eligible for tax credits for health insurance expenses if low-wage workers buy health insurance through the SHOP).

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2. The ACA Encourages Individual Participation in, and Improves Access to, the Individual Market. For those without employer-sponsored insurance, the ACA eliminates or significantly reduces the barriers that many pre-Medicare adults previously faced in accessing affordable health insurance in the individual market. See supra Part I.B; Whats at Stake, supra, at 5. The Act bans insurers practice of cancelling the policies of people who became ill, 42 U.S.C. 300gg12 (2012), and requires insurers to accept every employer and individual in the State that applies for . . . coverage, regardless of preexisting conditions. 42 U.S.C. 300gg-1(a). New ratings limitations prohibit insurers from charging differential premiums based on health status. 42 U.S.C. 300gg(a)(1)(A)-(B). Though insurers may still use agerating, premiums for older adults may not be more than three times the amount of the premium for a younger adult. 42 U.S.C. 300gg(a)(1)(A)(iii). To ensure that the insurance market can cover the risk of insuring more people with health conditions, the individual mandate ensures the participation of healthy people by requiring most people to purchase insurance and maintain minimum health coverage.3 26 U.S.C. 5000A(a) (2012). Between guaranteed issue provisions, ratings limitations, and the individual mandate, the ACA seeks to create effective
3

Adults 30 years of age and under and those who demonstrate they cannot afford coverage have the option to purchase catastrophic coverage, and everyone has the option of paying a tax in lieu of purchasing coverage. In 2014, the tax is the lesser of $95 or 1% of taxable income. See 26 U.S.C. 5000A(c)(2)(B) and 5000A(c)(3). In 2016, the tax grows to $695 or 2.5% of taxable income. Id. 18

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health insurance markets in which improved health insurance products that are guaranteed issue and do not exclude coverage of preexisting conditions can be sold by broadening the risk pool to include people of varying health statuses. 42 U.S.C. 18091(2)(G). 3. The ACA Makes Health Insurance in the Individual Market More Affordable. In addition to reducing barriers to access, the ACA makes health insurance on the individual market more affordable through two principal forms of direct financial assistance to qualified individuals buying coverage offered on the Health Insurance Exchange/Marketplace: tax credits to reduce the cost of premiums for people with incomes between 100 and 400% of the federal poverty level, 26 U.S.C. 36B(b)(3)(A) (2012), and subsidies to reduce out-of-pocket expenses for people with incomes under 250% of the federal poverty level, 42 U.S.C. 18071(c)(2) (2012). About 2 million adults ages 50 to 64 on the individual market and more than 5 million who are uninsured may qualify for premium tax credits for individual market coverage purchased on the Exchange. Effect of Health Reform, supra, at 7. This assistance was designed to encourage low-income adults to purchase insurance rather than choose the other option to fulfill their individual shared responsibility requirementpaying a tax. 26 U.S.C. 5000A(b); see also H.R. Rep. No. 111-443, vol. 1, at 250 (2010) (premium tax credits are key to ensuring people affordable health coverage). 19

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4. The ACA Encourages States to Expand Medicaid Coverage for Low-Income Adults Who May be Exempt From the Individual Mandate. While individuals who cannot afford coverage even with the aid of premium tax credits are exempt from the individual mandate, 26 U.S.C. 5000A(e)(1), the Act permits states to expand their Medicaid programs so that lower income people are eligible for public insurance under the ACA. 42 U.S.C. 1396a(a)(10)(A) (i)(VIII) (2012). Prior to the ACA, in most states low-income adults without dependent children were not eligible for Medicaid, unless they had a disability. Beginning in 2014, adults in this category whose incomes are at or below 138% of federal poverty will be eligible for Medicaid if their state chose to participate in this expansion. 42 U.S.C. 1396d(y) (2012); Natl Fedn of Indep. Bus., 132 S. Ct. at 2607 (making Medicaid expansion a state option). Currently, 25 states and the District of Columbia have chosen to expand. Kaiser Family Found., Status of State Action on the Medicaid Expansion Decision, 2014, http://kff.org/ healthreform/state-indicator/state-activity-around-expanding-medicaid-under-theaffordable-care-act/ (last visited Feb. 13, 2014). Those living between 100 and 138% of poverty in states that do not expand may purchase coverage on the Exchanges and qualify for premium tax credits and cost-sharing subsidies. About 1.3 million low-income pre-Medicare adults who did not have employer-sponsored health insurance in 2012 had incomes between 100 and 138% of poverty. Effect of 20

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Health Reform, supra, at 7, fig. 2. These low-income pre-Medicare adults could qualify for Medicaid or, if their state of residency is not expanding Medicaid eligibility, for subsidies on the Exchanges. IV. Premium Tax Credits are Essential to the Acts Primary Purpose Achieving Access and Affordability for All. The CBO estimates that, in 2014, 5 million people will purchase insurance on the Exchanges with the assistance of premium tax credits. Cong. Budget Office, Insurance Coverage Provisions of the Affordable Care ActCBOs February 2014 Baseline, Table 3 (2014). By 2018, that number is expected to reach 20 million. Id. Of these, approximately 12.5 million reside in states that have either a federally-facilitated or partnership Exchange. See Gary Claxton et al., Kaiser Family Found., State-by-State Estimates of the Number of People Eligible for Premium Tax Credits Under the Affordable Care Act 1 (2013) at 3, tbl. 1; State Decisions for Creating Health Insurance Marketplaces, 2014, Kaiser Family Found., http://kff.org/health-reform/state-indicator/health-insuranceexchanges/ (last visited Feb. 13, 2014) [hereinafter State Decisions]. The most recent report of enrollment shows that, from October 1, 2013 to February 1, 2014, 3.3 million people selected plans on the Marketplace. U.S. Dept of Health & Human Servs., Health Insurance Marketplace: February Enrollment Report for the Period: October 1, 2013 -- February 1, 2014 1 (2014). Eighty-two percent of all

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enrollees, on both the state-facilitated and the federally-facilitated Exchanges, have selected plans with premium tax assistance. Id. at 4. The majority of those enrolled in plans offered in the Marketplace are preMedicare adults. Id. at 7, tbl. 3 (22% are ages 45 to 54 and 31% are ages 55 to 64). Premium tax credits will be especially important to pre-Medicare adults, given their historical difficulty accessing affordable care. For example, one study estimates that subsidies will reduce the cost of premiums for a 60-year-old, living at 250% of poverty in Indianapolis, Indiana (a state with a federally-facilitated Exchange) by $433 for a Silver Plan. See Cynthia Cox et al., Kaiser Family Found., An Early Look at Premiums and Insurer Participation in Health Insurance Marketplaces, 2014 6 (2013). Without premium assistance, this 60 year-old could pay $626 per month for this plan, representing 26% of monthly income.4 Given the high cost of insurance relative to income, this 60 year-old may opt to pay the tax penalty, which can range from $95 to 1% of taxable income in 2014, 26 U.S.C. 5000A(c)(2), or seek an exemption and forgo health insurance altogether. This example illustrates that, for low- to moderate-income people, assistance with their premiums will be the difference between coverage that is affordable and coverage that is out of reach.
4

Two hundred and fifty percent of the FPL in 2013, when this study was conducted, equates to an annual income of $28,725 and a monthly income of about $2,394. See Annual Update of the HHS Poverty Guidelines, 78 Fed. Reg. 5,182 (Jan. 24, 2013). 22

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V.

Premium Tax Credits Were Meant to Incentivize Individuals, Not States. The text and structure of the ACA support the conclusion that premium tax

credits were provided to incentivize individuals to participate in the individual health insurance market, not to incentivize states to establish Exchanges. Like the individual mandate and the federal tax enforcing it, see 26 U.S.C. 5000A(b)(2), premium tax credits are directed at individuals and enforced through federal mechanisms. The amount of the credit depends on the individuals household income. 26 U.S.C. 36B(b)(3)(A)(i). Additionally, premium credits are available as an advance payment to the individual or are payable directly to the individuals insurer as a refundable federal income tax credit. See 26 U.S.C. 36B(f); 42 U.S.C. 18082(c) (2012). Congress may have established other incentives for states to participate in the ACA, see Appellees Br. 41-42, but the individual tax subsidy is not one of those incentives. Appellants cite no authority for their proposition that premium tax credits were intended to induce states to act to establish Exchanges beyond a proposed draft bill that did not pass, and was never considered outside of one Committee. Appellants Br. 39-41; see 155 Cong. Rec. S 9553 (Sept. 17, 2009), 2010 Bill Tracking S. 1679 (LEXIS). Instead, they point to Medicaid and CHIP as allegedly analogous examples of the federal government incentivizing states to administer a federal program. See Appellants Br. 41. These two statutory schemes, however, 23

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differ fundamentally from the ACA because under both programs, the State itself is responsible for accepting the federal money, using that money to purchase health services, and then providing the purchased benefits to covered individuals according to the States own program and regulations. States have no such role in administering the individual mandate or premium tax credits under the ACA. Instead, the ACA encourages individual action by imposing taxes or providing refundable tax credits directly to the individual through the federal income tax return. VI. Eliminating the Availability of Premium Tax Credits in Thirty Four States Will Cannibalize the Acts Key Reforms. The availability of premium tax credits in all states is essential to achieving the ACAs central purpose. This is evident not only from the effect that the elimination of premium tax credits has on affordability, both in terms of individual affordability and the overall effect it has on prices due to a smaller and higher risk insurance pool, but also from the effect it has on many other reforms central to the ACA. All other ACA reforms designed to make coverage more accessible, such as the guaranteed issue provisions and limitations on age rating, will be meaningless if insurance in the individual market remains unaffordable. See supra Parts III.B.1-3. Moreover, eliminating premium assistance in the 225 states with

It is estimated that about 9.4 million people in these 22 states will qualify for premium tax credits. See supra, State Decisions; supra, Claxton, at tbl. 1. 24

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federally-facilitated Exchanges that are not expanding Medicaid eligibility means that low-income residents in these states will not have new options for affordable coverage. See supra Part III.B.4. Additionally, according to Appellants interpretative theory, employers in 34 states would be able to evade the employer mandate simply because their state chose not to establish an Exchange thus eliminating another important reform designed to increase access to affordable care. See supra Part III.B.1. It is implausible, to say the least, that Congress intended to allow the entire Act to be cannibalized by a states choice not to establish its own Exchange. CONCLUSION The ACA was designed to increase the number of insured while making individual market insurance more affordable. Premium tax credits for individual purchasers accomplish both goals by encouraging individuals to purchase insurance and by making insurance available to low- to moderate-income purchasers by reducing its costs for them. These tax credits are critical to ensuring that all Americans, and in particular older adults, have access to adequate and affordable health care. Reading the ACA to limit premium tax credits only to people who live in states that established their own Exchanges will make insurance unaffordable and inaccessible to millions of low-to moderate-income Americans in the 34 states with Exchanges that are not exclusively facilitated by the state a 25

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result that is plainly contrary to the purpose the ACA and all of its key reform provisions. Because Appellants limitation on the availability of premium tax credits would bring about an end completely at variance with the purpose of the statute, it must be rejected. United Steelworkers v. Weber, 443 U.S. 193, 202 (1979) (statutory prohibition on discrimination because of race did not prohibit voluntary race-based affirmative action). For these reasons, and for those detailed in Appellees Brief, the ruling of the District Court should be affirmed.

Dated: February 17, 2014.

Respectfully submitted, /s/Kelly Bagby_________________ Kelly Bagby,* DC Bar No. 462390 *Counsel of Record Iris Y. Gonzlez, DC Bar No. 987156 AARP FOUNDATION LITIGATION Michael Schuster, DC Bar No. 934133 AARP 601 E St., NW Washington, DC 20049 202-434-2060 kbagby@aarp.org igonzalez@aarp.org Martha Jane Perkins National Health Law Program 101 E. Weaver Street, Suite F-7 Carrboro, NC 27510 (919) 968-6308 (x101) perkins@healthlaw.org 26

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CERTIFICATE OF SERVICE I hereby certify that on February 17, 2104, I electronically filed the original of the foregoing document with the clerk of this Court by using the CM/ECF system. I certify that the participants in the case are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF system. I will also file eight copies of the foregoing document, by hand delivery, with the clerk of this court on February 18, 2014.

Dated: February 17, 2014.

/s/Kelly Bagby Kelly Bagby Counsel of Record for Amici

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CERTIFICATE OF COMPLIANCE 1. Amici curiae certify that this brief complies with the type-volume

limitation of Fed. R. App. P. 32(a)(7)(B) because: this brief contains 5,923 words, excluding the parts of the brief exempted by Fed. R. Ap. P. 32(a)(7)(B)(iii). 2. Amici curiae certify that this brief complies with the typeface

requirements of Fed. R. App. P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because: this brief has been prepared in a proportionally spaced typeface using Microsoft Office Word 2007 in Times New Roman 14-point font. 3. Pursuant to Fed. R. App. P. 29, amici curiae certify that all parties

have consented to the filing of this brief. Amici further certify that no party or partys counsel authored this brief in whole or in part; and no person other than amici contributed money intended to fund the briefs preparation or submission.

Dated: February 17, 2014.

/s/Kelly Bagby Kelly Bagby Counsel of Record for Amici

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ORAL ARGUMENT SCHEDULED FOR MARCH 25, 2014 No. 14-5018 IN THE

United States Court of Appeals for the District of Columbia Circuit

_______________ JACQUELINE HALBIG, et al., Plaintiffs-Appellants, v. KATHLEEN SEBELIUS, SECRETARY OF HEALTH AND HUMAN SERVICES, et al., Defendants-Appellees. _______________ On Appeal from the United States District Court for the District of Columbia No. 1:13-cv-00623-PLF (Friedman, J.) _______________ BRIEF AMICUS CURIAE OF THE AMERICAN HOSPITAL ASSOCIATION IN SUPPORT OF APPELLEES AND AFFIRMANCE _______________ MELINDA REID HATTON MAUREEN MUDRON AMERICAN HOSPITAL ASSOCIATION 325 Seventh Street, N.W. Washington, D.C. 20001 (202) 638-1100 DOMINIC F. PERELLA SEAN MAROTTA HOGAN LOVELLS US LLP 555 Thirteenth Street, N.W. Washington, D.C. 20004 (202) 637-6452 dominic.perella@hoganlovells.com Counsel for Amicus Curiae Dated: February 17, 2014

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CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES Pursuant to Circuit Rule 28(a)(1), the American Hospital Association (AHA) certifies the following: Parties and Amici. a. All parties, intervenors, and amici appearing before the District Court and in this Court are listed in the Appellees brief. b. AHA represents more than 5,000 hospitals, health care systems, and other health care organizations, plus 42,000 individual members. AHA members are committed to improving the health of communities they serve and to helping ensure that care is available to, and affordable for, all Americans. AHA educates its members on health care issues and advocates to ensure that their perspectives are considered in formulating health care policy. AHA has no parent company and no publicly-held company holds more than a ten percent interest in AHA. In addition, AHA is a trade association for purposes of D.C. Circuit Rule 26.1(b). Rulings Under Review. The ruling under review is listed in the Appellees brief. Related Cases. Counsel are not aware of any related cases within the meaning of Circuit Rule 28(a)(1)(C). /s/ Dominic F. Perella Dominic F. Perella

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CERTIFICATE IN SUPPORT OF SEPARATE BRIEF Pursuant to Circuit Rule 29(d), the American Hospital Association states that a separate brief is necessary for its presentation to this Court because it alone among the amici intending to file in support of Appellees represents the distinct interests of American hospitals in this case. In addition, a joint brief is not feasible because other amici in support of Appellees have interests divergent from those of AHA and its members. /s/ Dominic F. Perella Dominic F. Perella

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TABLE OF CONTENTS Page CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES...........................................................................................i CERTIFICATE IN SUPPORT OF SEPARATE BRIEF ......................................... ii TABLE OF AUTHORITIES ....................................................................................iv STATEMENT OF INTEREST OF AMICUS CURIAE ...........................................1 SUMMARY OF ARGUMENT .................................................................................2 ARGUMENT .............................................................................................................4 I. ELIMINATING SUBSIDIES IN STATES WITH FEDERALLY-FACILITATED EXCHANGES WOULD HARM MILLIONS OF AMERICANS AND BADLY UNDERCUT THE ACA .................................................................................4 A. B. C. D. Subsidies Are Critical To Make Insurance Affordable Under The ACA ....................................................................................4 The Loss of Subsidies Would Be Particularly Harmful Given The Refusal Of Many States to Expand Medicaid.....................9 The Loss of Subsidies Would Undercut The ACA.............................11 The Absence Of Subsidies Would Force Hospitals To Shoulder Even More Of The Burden To Pay For The Nations Health Care ...........................................................................12

III.

PLAINTIFFS POSITION IS INCOMPATIBLE WITH THE TEXT AND STRUCTURE OF THE ACA...................................................14

CONCLUSION........................................................................................................18 CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE

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TABLE OF AUTHORITIES Page CASES: American Tobacco Co. v. Patterson, 456 U.S. 63 (1982)..........................................................................................3, 17 * Kaseman v. District of Columbia, 444 F.3d 637 (D.C. Cir. 2006)........................................................................3, 17 King v. St. Vincents Hosp., 502 U.S. 215 (1991)............................................................................................15 Lynch v. Overholser, 369 U.S. 705 (1962)............................................................................................17 Natl Fed. of Indep. Business v. Sebelius, 132 S. Ct. 2566 (2012)..........................................................................................9 United States v. Barnes, 295 F.3d 1354 (D.C. Cir. 2002)..........................................................................15 United States v. Brown, 333 U.S. 18 (1948)..............................................................................................17 United States v. Campos-Serrano, 404 U.S. 293 (1971)............................................................................................17 STATUTES: 26 U.S.C. 36B ...................................................................................................5, 14 42 U.S.C. 300gg(a) ...............................................................................................11 42 U.S.C. 300gg1-4.............................................................................................11 42 U.S.C. 18021(a)(1)(B) .......................................................................................4 42 U.S.C. 18031-18044 ........................................................................................4 * Authorities on which we chiefly rely are marked with an asterisk. iv

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TABLE OF AUTHORITIESContinued Page 42 U.S.C. 18032(a)(1)...........................................................................................16 42 U.S.C. 18032(f)(1)(A)......................................................................................16 42 U.S.C. 18091(2)(I) ...........................................................................................11 RULE: Fed R. App. P. 29.......................................................................................................1 LEGISLATIVE MATERIALS: 157 Cong. Rec. S737 (daily ed. Feb. 15, 2011)...................................................3, 12 H.R. Rep. No. 111-443, vol. I (2009) ......................................................................14 S. Rep. No. 111-89 (2009) .......................................................................................14 OTHER AUTHORITIES: American Hosp. Assn, Trendwatch Chartbook 2013 (2013).................................13 American Hosp. Assn, Uncompensated Hospital Care Cost Fact Sheet (Jan. 2013)...........................................................................................................13 American Hospital Assn, Summary of 2010 Health Care Reform Legislation (Apr. 19, 2010).................................................................................14 CBO, An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act (Nov. 30, 2009) ..........................................5 CBO, Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision (July 2012) ..........................................................................................................10 * CBO, Insurance Coverage Provisions of the Affordable Care ActCBOs February 2014 Baseline (Feb. 2014) (2014 Baseline) .....................................6, 7 J. Cohn, Five Things We Know About ObamacareAnd One We Dont, The New Republic, Sept. 6, 2013 .........................................................................5 v

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TABLE OF AUTHORITIESContinued Page The Commonwealth Fund, State Action to Establish Health Insurance Marketplaces (July 2013) ...................................................................................10 C. Cox, et al., Kaiser Family Foundation, An Early Look at Premiums and Insurer Participation in Health Insurance Marketplaces, 2014 (Sept. 2013)...........................................................................................................6 J. Gruber, Health Care Reform Is a Three-Legged Stool: The Costs of Partially Repealing the Affordable Care Act (Aug. 2010)..............8 Kaiser Commn on Medicaid & the Uninsured, The Uninsured & the Difference Health Care Makes (Sept. 2010) ..................................................8, 11 Kaiser Family Foundation, Key Facts About the Uninsured Population (Sept. 2013)...........................................................................................................8 * Kaiser Family Foundation, State-by-State Estimates of the Number of People Eligible for Premium Tax Credits Under the Affordable Care Act (Nov. 2013) ...........................................................................................................7 Kaiser Family Foundation, The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid (Oct. 2013) ..........................................9, 10 A. Monheit et al., Community Rating and Sustainable Individual Health Insurance Markets in New Jersey, Health Affairs, July/Aug. 2004 ...................12 B. Semro, The Bell Policy Center, Potential Impacts of New Federal Policies on Provider Reimbursement Rates (Nov. 1, 2011)...............................14 L. Skopec & R. Kronick, Department of Health & Human Servs., Market Competition Works: Proposed Silver Premiums in the 2014 Individual and Small Group Markets Are Nearly 20% Lower than Expected ......................4 U.S. Dept of Health & Human Servs., 2013 Poverty Guidelines ..........................10

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IN THE

United States Court of Appeals for the District of Columbia Circuit

_______________ JACQUELINE HALBIG, et al., Plaintiffs-Appellants, v. KATHLEEN SEBELIUS, SECRETARY OF HEALTH AND HUMAN SERVICES, et al., Defendants-Appellees. _______________ On Appeal from the United States District Court for the District of Columbia No. 1:13-cv-00623-PLF (Friedman, J.) _______________ BRIEF AMICUS CURIAE OF THE AMERICAN HOSPITAL ASSOCIATION IN SUPPORT OF APPELLEES AND AFFIRMANCE _______________ STATEMENT OF INTEREST OF AMICUS CURIAE The American Hospital Association (AHA) respectfully submits this brief as amicus curiae.1 The AHA represents more than 5,000 hospitals, health care systems, and other health care organizations, plus 42,000 individual members. AHA members

Pursuant to Federal Rule of Appellate Procedure 29, AHA certifies that all parties have consented to the filing of this brief. AHA likewise certifies that no partys counsel authored this brief in whole or in part; no party or partys counsel contributed money intended to fund the briefs preparation or submission; and no person other than AHA and its members and counsel contributed money intended to fund the briefs preparation or submission.

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are committed to improving the health of communities they serve and to helping ensure that care is available to and affordable for all Americans. The AHA educates its members on health care issues and advocates to ensure that their perspectives are considered in formulating health policy. AHAs members are deeply affected by the nations health care laws, particularly the Affordable Care Act (ACA). That is why AHA has filed amicus briefs in support of the law in the Supreme Court and in courts across the nation. AHA participated in this case in the District Court and is participating in this Court for the same reason: Subsidies are critical to the success of the law, and access to those subsidies for the uninsured in all states, not just some, will have a profound positive impact on both patients and hospitals. AHA writes to offer guidance, from hospitals perspective, on the disastrous impact plaintiffs position would have on American health care if they prevail. SUMMARY OF ARGUMENT It is impossible to overstate the centrality of subsidies to the ACA. Congress knew that many Americans could not afford to buy insurance. And it knew that it wanted toindeed, had tobring insurance within everyones reach if the ACA were to work. Congress thus built subsidies into the statute. The subsidies make it possible for millions who otherwise could not afford insurance to buy it. That, in

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turn, increases the ranks of the insured, lowers average costs, and averts the death spiral that would result if only the elderly and sick paid the required premiums. As one Senator put it, subsidies are one leg of the ACAs three-legged stool. If you take any leg out, the stool collapses. 157 Cong. Rec. S737 (daily ed. Feb. 15, 2011). In short, the ACA will not work without subsidies, and Congress knew it. Yet plaintiffs insist that Congress designed the ACA so that tens of millions of Americans, in more than half the states, would be walled off from subsidies altogether. That interpretation should be rejected for many reasons. It would be devastating to the ACA and to that statutes key goals. It would be equally devastating to Americas hospitalsespecially to safety-net hospitals, which care for large numbers of the poorest among us. And, critically, it bears no resemblance to what Congress intended. That last factor is dispositive. After all, [w]hen possible, statutes should be interpreted to avoid untenable distinctions, unreasonable results, or unjust or absurd consequences. Kaseman v. District of Columbia, 444 F.3d 637, 642 (D.C. Cir. 2006) (quoting American Tobacco Co. v. Patterson, 456 U.S. 63, 71 (1982)). This case presents the triple whammy: Plaintiffs statutory interpretation creates untenable distinctions, unreasonable

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results, and unjust and absurd consequences. The District Courts judgment should be affirmed. ARGUMENT I. ELIMINATING SUBSIDIES IN STATES WITH FEDERALLYFACILITATED EXCHANGES WOULD HARM MILLIONS OF AMERICANS AND BADLY UNDERCUT THE ACA. The plaintiffs case is based on a technicality, but there is nothing technical about the consequences of their position. It would leave insurance coverage out of the reach of millions of people and would gut the ACAs design. A. Subsidies Are Critical To Make Insurance Affordable Under The ACA.

One of the ACAs chief reforms was to create health insurance Exchanges to serve the individual and small-group health insurance markets. 42 U.S.C. 18031-18044. Through the Exchanges, qualified individuals can select among and purchase health insurance plans that provide a comprehensive essential health benefits package. Id. 18021(a)(1)(B). And although rates on the Exchanges are lower than many initially expected, see L. Skopec & R. Kronick, Department of Health & Human Servs., Market Competition Works: Proposed Silver Premiums in the 2014 Individual and Small Group Markets Are Nearly 20% Lower than Expected,2 they are still high enough thatjust as before the ACAmany lower2

Available at http://aspe.hhs.gov/health/reports/2013/Market 4

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and even middle-income Americans cannot easily afford to buy comprehensive coverage. See J. Cohn, Five Things We Know About ObamacareAnd One We Dont, The New Republic, Sept. 6, 2013.3 Congress understood the affordability issue. It therefore built into the Exchanges a system of tax credits that act as subsidies, reducing the cost of Exchange-offered plans for those with household incomes from 100-400% of the federal poverty level. See 26 U.S.C. 36B. Though the amounts depend on the state and a patients household income, the subsidies are often quite substantial. The Congressional Budget Office (CBO) has estimated that subsidies will cover nearly two-thirds of the premiums for policies purchased through the Exchanges, CBO, An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act, at 6 (Nov. 30, 2009),4 and the average subsidy will total $4,700 per subsidized enrollee, CBO, Insurance Coverage Provisions of the

CompetitionPremiums/rb_premiums.pdf.
3

Available at http://www.newrepublic.com/article/114622/obamacare-premiumsand-rate-shock-new-studies-and-consensus.
4

Available at http://cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10781/ 11-30-premiums.pdf.

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Affordable Care ActCBOs February 2014 Baseline tbl.2 (Feb. 2014) (2014 Baseline).5 A few examples illustrate the effect subsidies have on affordability. According to a recent calculation, a 60-year-old couple in Los Angeles with a $30,000 income would have to spend $1,082 per monthor about $13,000 per year, a huge chunk of their after-tax incometo buy an unsubsidized silver plan. With the ACAs subsidies, that plan would cost $150 per month. C. Cox, et al., Kaiser Family Foundation, An Early Look at Premiums and Insurer Participation in Health Insurance Marketplaces, 2014, at 9 (Sept. 2013).6 Likewise, a single 60year-old in Hartford, Connecticut making $28,725 per year would have to spend $697 per month before the subsidy but will pay only $193 per month with it. Id. at 6 fig.5. And a single 25-year-old in Burlington, Vermont making $28,725 per year would have to pay $413 per month without the subsidy but will pay only $193 per month with it. Id. at 5 fig.4. The bottom line: The ACAs subsidies are often the difference between health coverage that is affordable for lower-income Americans and health coverage that is not. Plaintiffs do not disagree. Indeed, their very claim to standing is

Available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/439002014-02-ACAtables.pdf.

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predicated on their allegation that the Exchange-offered subsidies are what makes health coverage affordable for them under the ACA. See D. Ct. Dkt. No. 39 at 3. Plaintiffs bid to eliminate subsidies for people who purchase policies through federally-facilitated Exchanges, if accepted, therefore would cost millions of Americans comprehensive coverage. According to the CBO, 6 million people are expected to purchase insurance through the Exchanges in 2014, but only 1 million of them will pay full sticker price. 2014 Baseline, supra, at tbl.2. In other words, 5 million Americans will rely on the ACAs subsidies to obtain coverage just this year. See id. That number will only grow with time. In 2022, the CBO estimates that 19 million Americans will need subsidies to purchase insurance from the Exchanges. See id. And most of themaround 72%, according to one studylive in states where the Exchange is federally facilitated. Kaiser Family Foundation, State-byState Estimates of the Number of People Eligible for Premium Tax Credits Under the Affordable Care Act 3 tbl.1 (Nov. 2013).7

Available at http://kaiserfamilyfoundation.files.wordpress.com/2013/09/earlylook-at-premiums-and-participation-in-marketplaces.pdf.
7

Available at http://kaiserfamilyfoundation.files.wordpress.com/2013/11/8509state-by-state-estimates-of-the-number-of-people-eligible-for-premium-taxcredits.pdf.

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Put differently, well over 10 million people would be stripped of eligibility for subsidies if plaintiffs were to prevail. See id. Because many of them simply cannot afford insurance on their own, they will remain uninsured. According to one study, unsubsidized Exchanges would lead to essentially no increase in the number of Americans enrolled in individual coverage. J. Gruber, Health Care Reform Is a Three-Legged Stool: The Costs of Partially Repealing the Affordable Care Act 5 (Aug. 2010). That would imperil the uncovered individuals health and finances, see Kaiser Commn on Medicaid & the Uninsured, The Uninsured & the Difference Health Care Makes 2 (Sept. 2010) (Difference Health Care Makes),8 and increase the load on this countrys already-overburdened health care system. For plaintiffs, making health coverage unaffordable apparently is a boon, freeing them from purchasing insurance they would rather not currently have. But people like plaintiffs are the rare exception. Most Americans would prefer to have comprehensive coverage, but cite high cost or lack of employer-sponsored health plans as the primary reason they do not have it. Kaiser Family Foundation, Key Facts About the Uninsured Population 2 (Sept. 2013).9 By contrast, only 1.5% of

8 9

Available at http://www.kff.org/uninsured/upload/1420-12.pdf.

Available at http://kaiserfamilyfoundation.files.wordpress.com/2013/09/8488key-facts-about-the-uninsured-population.pdf.

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uninsured Americans say they lack insurance because they do not need it. Id. This Court should not withdraw needed coverage for millions based on the policy preferences of an idiosyncratic few. B. The Loss Of Subsidies Would Be Particularly Harmful Given The Refusal Of Many States To Expand Medicaid.

The loss of subsidies in states with federally facilitated Exchanges would be particularly painful in light of many states refusal to expand Medicaid coverage. The ACA was expected to cover Americans too poor to purchase private insurance through the Exchanges but not eligible to receive Medicaid by expanding Medicaid to all non-disabled adults with income at 138% of the poverty level or lower. Kaiser Family Foundation, The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid 2 (Oct. 2013) (The Coverage Gap).10 However, in light of the Supreme Courts ruling that the Medicaid expansion is optional, see Natl Fed. of Indep. Business v. Sebelius, 132 S. Ct. 2566, 2609 (2012), half the states have refused to do so, The Coverage Gap, supra, at fig.1. Experts to this point have assumed that the Exchanges could help some of those left behind by states refusal to expand Medicaid. The CBO, for example, has estimated that 2 million of the 6 million people denied expanded Medicaid

10

Available at http://kaiserfamilyfoundation.files.wordpress.com/2013/10/8505the-coverage-gap-uninsured-poor-adults7.pdf.

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coverage will enroll through Exchanges using subsidies, mitigatingat least somewhatthe impact in those states. CBO, Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision 12 & tbl.1 (July 2012).11 If plaintiffs prevail, however, these 2 million people are unlikely to be able to obtain policies through the Exchanges. That is because, of the 25 states opting out of the Medicaid expansion, all but two have federally-facilitated exchanges. Compare The Coverage Gap, supra, at 1 fig.1 (listing states opting out of the Medicaid expansion), with The Commonwealth Fund, State Action to Establish Health Insurance Marketplaces (July 2013) (listing the states with federallyfacilitated exchanges).12 In those states, individuals making 100% to 138% of the poverty levelabout $11,500 to $15,900 per year13would have to seek coverage on the market with no subsidies at all, and would face premiums they could not possibly pay. See supra at 4-6. Plaintiffs position thus would not only deny

11

Available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/4347207-24-2012-CoverageEstimates.pdf.
12

Available at http://www.commonwealthfund.org/Maps-and-Data/StateExchange-Map.aspx.
13

U.S. Dept of Health & Human Servs., 2013 Poverty Guidelines, available at http://aspe.hhs.gov/poverty/13poverty.cfm.

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millions of Americans access to coverage. It would deny access to those who need it most: the poor who are not eligible for Medicaid in their states. C. The Loss Of Subsidies Would Undercut The ACA.

The loss of subsidies would be devastating to millions of Americans who otherwise could obtain health coverage. Lack of health coverage has a demonstrable negative impact on health outcomes and raises the risk of personal bankruptcy, among other ill effects. See Difference Health Care Makes, supra, at 2. But the removal of subsidies from the ACAs three-legged stool in most states also would imperil the law itself. The ACA prohibits insurers from charging disparate premiums based on health status (known as community rating) and requires them to offer coverage to all people wishing to purchase it (known as guaranteed issue). See 42 U.S.C. 300gg(a); id. 300gg1-4. And Congress explicitly recognized that health coverage providers could make the economics of guaranteed issue and community rating work only if they received an influx of new, relatively low-cost customers. See 42 U.S.C. 18091(2)(I). That is one reason why Congress also included the individual mandate and subsidies in the law. Those provisions are designed to give Americans young and old, healthy and less so, the buying power and incentives to enter the market. Without those incentives, only highly motivated peoplewho

11

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expect to consume health care, so that coverage is worthwhile even at a high pricetend to sign up, raising insurers average costs. See id. Premiums therefore go up, further impeding entry into the market by healthier customers and risking a marketwide adverse-selection death spiral, A. Monheit et al., Community Rating and Sustainable Individual Health Insurance Markets in New Jersey, Health Affairs, July/Aug. 2004, at 167, 169. That is exactly what Congress tried to avoid by including subsidies in the ACA. As legislators recognized, subsidies are one of the three key legs of the statutory design. And [i]f you take any leg out, the stool collapses. 157 Cong. Rec. S737 (daily ed. Feb. 15, 2011). D. The Loss Of Subsidies Would Harm Hospitals And Further Fray The Already Fragile Safety Net.

Denying subsidies to those in states with federally facilitated exchanges would lead to an inevitable result: far more uninsured patients than anyone anticipated. Those patients would be forced to rely on hospitals and other safetynet providers for care. And that additional straina strain the subsidies were specifically designed to eliminatewould come at a time when hospitals are particularly ill-equipped to handle it. Medicare and Medicaid have long pegged reimbursement rates at a level too low to cover the costs hospitals incur treating patients. See American Hosp. Assn,

12

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Trendwatch Chartbook 2013 tbl.4.5 (2013).14 Thus in 2011, hospitals lost a total of $29.8 billion providing care to Medicare and Medicaid patients. Id. That staggering figure represents only one year out of a decade-long history of losses. Losses on government-insured-patient care over that time have ranged from a low of $3.8 billion in 2000 to a high of $36.5 billion in 2009. Id. In none of those years did hospitals reimbursements from the government cover their aggregate expensesadding up to a total loss of $262.4 billion between 2000 and 2011. See id. Hospitals therefore directly underwrite Medicare and Medicaid by covering costs for government-insured patients that the government does not. Moreover, hospitals provide substantial uncompensated care to patients for which they are not reimbursed by anyone. That care added up to an additional $41.1 billion in 2011. See American Hosp. Assn, Uncompensated Hospital Care Cost Fact Sheet 3 (Jan. 2013).15 Indeed, since 2000, hospitals provided more than $367 billion in uncompensated care to the uninsured and under-insured. Id. Plaintiffs position would cause hospitals to shoulder an even greater burden, requiring them to furnish similar amounts of uncompensated care while at the same
14

Available at http://www.aha.org/research/reports/tw/chartbook/2013/table45.pdf.
15

Available at http://w ww.aha.org/content/13/1-2013-uncompensated-care-fs.pdf.

13

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time losing billions in government support. See American Hosp. Assn, Summary of 2010 Health Care Reform Legislation 34-35 (Apr. 19, 2010) (ACA cuts support for hospitals providing uncompensated care by $40.2 billion over the next decade)16; B. Semro, The Bell Policy Center, Potential Impacts of New Federal Policies on Provider Reimbursement Rates (Nov. 1, 2011) (ACA cuts overall provider payments by $156 billion to $233 billion in the next decade).17 That is a far cry from what Congress had in mind. II. PLAINTIFFS POSITION IS INCOMPATIBLE WITH THE TEXT AND STRUCTURE OF THE ACA. In short, plaintiffs propose an interpretation of the ACAs subsidy provision that flies in the face of everything Congress intended when it enacted the statute. Congresss goal in the ACA was [t]o ensure that health coverage is affordable, S. Rep. No. 111-89, at 4 (2009). It recognized that the subsidies provided under Section 36B are key to ensuring people affordable health coverage; H.R. Rep. No. 111-443, vol. I, at 250 (2009) and yet plaintiffs would read Section 36B to deny subsidies to more than half the nation. That is, to put it mildly, implausible.

16

Available at http://www.aha.org/advocacy-issues/toolsresources/advisory/2010/100419-legislative-adv.pdf.
17

Available at http://bellpolicy.org/content/potential-impacts-new-federal-policiesprovider-reimbursement-rates.

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Moreover, the statutes text and structure prove that that result is not what Congress had in mind. This Court typically divines Congress intent by applying the plain and unambiguous meaning of statutory text. United States v. Barnes, 295 F.3d 1354, 1359 (D.C. Cir. 2002) (citation omitted). Contrary to plaintiffs simplistic approach, however, plain-meaning interpretation does not involve looking at the words of particular statutory phrases in isolation. Instead, the meaning of text depends on the specific context in which that language is used, and the broader context of the statute as a whole. Id. (citation omitted); accord King v. St. Vincents Hosp., 502 U.S. 215, 221 (1991) (the cardinal rule is that the statute is to be read as a whole, since the meaning of statutory language, plain or not, depends on context.) (citation omitted). Moreover, this Courts inquiry ends with supposedly plain language only if the resulting statutory scheme is coherent and consistent. Barnes, 295 F.3d at 1359 (citation omitted). Plaintiffs interpretation violates both caveats. As the Government points out, plaintiffs myopic focus on the words established by the State creates incongruities throughout the ACA. See Govt. Br. 25-34. But one stands out above all others: Under Section 1312 of the Act, a qualified individual may enroll in any qualified health plan available to such individual, and for which such

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individual is eligible. 42 U.S.C. 18032(a)(1). And the Act goes on to define a qualified individual as one who(i) is seeking to enroll in a qualified health plan in the individual market offered through the Exchange; and (ii) resides in the State that established the Exchange. 42 U.S.C. 18032(f)(1)(A). If plaintiffs reading of the words State, established and Exchange were correct, not only would subsidies not be available in states with federally-facilitated Exchanges; insurance would not be available in those states. After all, only qualified individuals can purchase insurance from the Exchanges. But under plaintiffs reading there would be no qualified individuals in states with federallyfacilitated Exchanges because there would be no State that established the Exchange. See J.A. 355 (pointing out this consequence of plaintiffs interpretation). Even plaintiffs cannot accept this conclusion; they appeal to increasingly strained distinctions to escape the logical endpoint of their supposed plainlanguage construction. See Plaintiffs Br. 32-35. The fact that plaintiffs must resort to such contortions only underscores the perils of resting an argument on a single phrase in a massive piece of legislation. Here, the text, purpose, and history of the ACA demonstrate that Congress intended to make credits broadly available, as a means to make health insurance affordable for all Americans. Supra at 4-14.

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Plaintiffs statutory snippets and inconclusive canons cannot overcome that overarching statutory purpose, enacted throughout the ACAs many interlocking provisions. This Court need not, and should not, accept a statutory interpretation that (1) contradicts congressional intent and statutory purpose and (2) introduces absurdities into the statutory structure. With respect to the first point, the Supreme Court has long held that [t]he canon in favor of strict construction is not an inexorable command to override common sense and evident statutory purpose. It does not require magnified emphasis upon a single ambiguous word in order to give it a meaning contradictory to the fair import of the whole remaining language. United States v. Brown, 333 U.S. 18, 25-26 (1948); accord United States v. Campos-Serrano, 404 U.S. 293, 298 (1971); Lynch v. Overholser, 369 U.S. 705, 710 (1962). And with respect to the second, this Court has held that [w]hen possible, statutes should be interpreted to avoid untenable distinctions, unreasonable results, or unjust or absurd consequences. Kaseman, 444 F.3d at 642 (quoting American Tobacco, 456 U.S. at 71). In Kaseman, the Court applied that principle to hold that Congress had not made statutory eligibility for an entitlement turn on a factual distinction that anyone with common sense would have viewed as irrelevant to the entitlement at

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issue. See id. (We see no evidence in the IDEA or the appropriations act that Congress intended to vary parents entitlement to fees depending on whether the parents rights are vindicated administratively or judicially.). So too here. Statutory text, context, and history all make abundantly clear that Congress designed the ACA to provide subsidies to those who need them, regardless of where they live. CONCLUSION For the foregoing reasons, the District Courts judgment should be affirmed. Respectfully submitted, /s/ Dominic F. Perella DOMINIC F. PERELLA SEAN MAROTTA Hogan Lovells US LLP 555 Thirteenth Street, N.W. Washington, D.C. 20004 (202) 637-6452 MELINDA REID HATTON MAUREEN MUDRON AMERICAN HOSPITAL ASSOCIATION 325 Seventh Street, N.W. Washington, D.C. 20001 (202) 638-1100 Counsel for Amicus Curiae

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CERTIFICATE OF COMPLIANCE Pursuant to Fed R. App. P. 32(a)(7)(C) and Circuit Rule 32(a), I hereby certify that the foregoing brief was produced using the Times New Roman 14point typeface and contains 3,462 words. /s/ Dominic F. Perella Dominic F. Perella

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CERTIFICATE OF SERVICE I certify that on February 17, 2014, the foregoing was electronically filed through this Courts CM/ECF system, which will send a notice of filing to all registered users.

/s/ Dominic F. Perella Dominic F. Perella