July 8 2014

D.C.’s ObamaCare Tax Could Be Invalidated

Patrice J. Lee

ObamaCare in the nation’s capitol just ran into a potential new road block as a lawsuit was filed in U.S. District Court to invalidate a broad new tax to fund the D.C. health exchange.

A national insurance industry group, which includes insurers Unum and Aflac (both vocal opponents to the tax), filed the suit. They argue that their health products should not be taxed because they more like financial planning tools than health insurance options. In the event of loss, they pay the clients directly, not hospitals or doctors. Their products also have nothing to do with the healthcare exchange.     

In May, the D.C. Council unanimously approved a broad 1 percent tax on all health-related insurance plans and products for all of those who live and work in D.C. These items included long-term care, disability, vision, dental, hospital indemnity, and dozens of other policies.  Exchange officials planned to soon begin collecting the 1 percent tax (expected to raise $28 million) to fund its operating costs.

Other states have just taxed medical plans sold on exchanges but D.C. doesn’t have enough paying customers to copy that model so they’re forcing all D.C. residents to “share” the pain.

The insurance companies argue that D.C. has no right to override the Affordable Care Act which limits how exchanges are funded to fees and levies on products sold on the exchanges only. We'll see if the U.S. District Court agrees.

The Washington Post reports:

The lawsuit alleges that the tax recently approved to prop up the D.C. exchange — one of the nation’s costliest per enrollee — will drive up premiums for residents on dozens of insurance products that receive no benefit from the exchange.

In its filing in U.S. District Court, the American Council of Life Insurers calls the arrangement an illegal taking under the Fifth Amendment as well as a violation of the Affordable Care Act, which calls for state-run exchanges to be financially self-sufficient by the end of the year.

 “We have a number of constitutional claims that all point in the same direction,” said Paul D. Clement, a former U.S. solicitor general under President George W. Bush, who is representing the insurers.

“Governments have a lot of freedom to impose taxes on the general population, but what they don’t have is the ability to make one group of people pay for something that they don’t get some benefit from.”

A study recently pegged the D.C. exchange’s cost per enrollee at nearly $12,500, second only to Hawaii. D.C. exchange officials warned that to cover costs, a whopping 17 percent tax would be needed on every plan issued on the D.C. Health Link Web site. The leading insurers who offer plans on the Web site cautioned that such a tax could erase many low-income residents’ benefits of buying plans through the exchange.

One of the challenges of imposing ObamaCare is its long-term sustainability. States that decided to create their own exchanges were granted federal funds to get healthcare exchanges up and running with the requirement of self-sufficiency by the end of the year.

D.C. is grappling with the practicality of self-sufficiency, especially when the enrollment numbers were not as expected. Instead of taxing just those with ObamaCare plans, they are forcing all residents to pay for a system that they don’t benefit from and may not agree with. As a D.C. resident, I understand that frustration.

At least we have someone working on behalf of residents in the District who opted to take/retain their private healthcare. Our tax dollars have already been used to create ObamaCare through our federal government. Now, the District is trying to bleed us forever because it could not attract enough people into its exchange to make the system viable. That's neither legal nor fair from what we can see and hopefully the District Court will agree.

 

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