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Appeals court: Most Obamacare subsidies illegal

Appeals court: Most Obamacare subsidies illegal | Cultural Trendz |

In a potentially crippling blow to Obamacare, a federal appeals court panel declared Tuesday that government subsidies worth billions of dollars that helped 4.7 million people buy insurance on are illegal.

A judicial panel in a 2-1 ruling said such subsidies can be granted only to those people who bought insurance in an Obamacare exchange run by an individual state or the District of Columbia — not on the federally run exchange

"Section 36B plainly makes subsidies available in the Exchanges established by states," wrote Senior Circuit Judge Raymond Randolph in his majority opinion, where he was joined by Judge Thomas Griffith. "We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up their own Exchanges, our ruling will likely have significant consequences both for millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly."

In his dissent, Judge Harry Edwards, who called the case a "not-so-veiled attempt to gut" Obamacare, wrote that the judgment of the majority "portends disastrous consequences."

Indeed, the decision threatens to unleash a cascade of effects that could seriously compromise Obamacare's goals of compelling people to get health insurance, and helping them afford it.

The Obama administration is certain to ask the full U.S. Court of Appeals for the District of Columbia Circuit to reverse the panel's decision, which for now does not have the rule of law.

The ruling endorsed a controversial interpretation of the Affordable Care Act that argues that the subsidies are illegal because ACA does not explicitly empower a federal exchange to offer subsidized coverage, as it does in the case of state-created exchanges. Subsidies for more than 2 million people who bought coverage on state exchanges would not be affected by Tuesday's ruling if it is upheld. serves residents of the 36 states that did not create their own health insurance marketplace. About 4.7 million people, or 86 percent of all enrollees, qualified for a subsidy to offset the cost of their coverage this year because they had low or moderate incomes.

If upheld, the ruling could lead many, if not most of those subsidized customers to abandon their health plans sold on because they no longer would find them affordable without the often-lucrative tax credits. And if that coverage then is not affordable for them as defined by the Obamacare law, those people will no longer be bound by the law's mandate to have health insurance by this year or pay a fine next year.

If there were to be a large exodus of subsidized customers from the plans, it would in turn likely lead to much higher premium rates for non-subsidized people who would remain in those plans, who are apt as a group to be in worse health than all original enrollees.

The ruling also threatens, in the same 36 states, to gut the Obamacare rule starting next year that all employers with 50 or more full-time workers offer affordable insurance to them or face fines. That's because the rule only kicks in if one of such an employers' workers buy subsidized covered on

The decision by the three-judge panel in DC federal appeals circuit is the most serious challenge to the underpinnings of the Affordable Care Act since a challenge to that law's constitutionality was heard by US Supreme Court. The high court in 2012 upheld most of the ACA, including the mandate that most people must get insurance or pay a fine.

Tuesday's bombshell ruling by the appeals court is expected to be met by Obama Administration asking for a panel made up of all the judges in the same circuit to review the ruling.

If it fails at that level, the administration can ask the Supreme Court to reverse the ruling.

A high court review is only guaranteed if another federal appeals court circuit rules against plaintiffs in a similar case challenging the subsidies. And the only other circuit currently considering such a a case, the Fourth Circuit, is expected to rule against plaintiffs there in a decision that is believed to be imminent.

Tuesday's ruling in DC focused on the plaintiffs' claim that the ACA, in several of its sections, says that subsidies from the federal government, in the form of tax credits, can be issued through an exchange established by a state.

The law also says that if a state chooses not to set up its own exchange, the federal government can establish its own marketplace to sell insurance in such states.

However, the ACA does not explicitly say, as it does in the case of state-run exchanges, that subsidies can be given to people who buy insurance on a federal exchange.

The plaintiffs' claim has been met with derision by Obamacare supporters, who argue that it relies on a narrow reading, or even misreading of the law. Those supporters said the claim ignores is its overarching intent: to provide affordable insurance to millions of people who were previously uninsured.

Supporters argue that the legality of the subsidies to enrollee derives from the fact that the law explicitly anticipated the potential need to create an exchange in the event that a state chose not to.

When the ACA was passed into law, most supporters believed that the vast majority of states would create their own exchange. But the opposition to Obamacare of many Republican governors and state legislators lead to most states refusing to build their own marketplaces, setting the stage for the challenges to the subsidies issued for plans.

Two separate federal district court judges — one in DC, the other in Virginia — have rejected plaintiffs' challenge to the subsidies. Those denials lead to the appeals in the DC federal circuit and in the Fourth Circuit.

Out of the more than 8 million Obamacare enrollees this year, less than 2.6 million signed up in plans sold via an exchange run by a state or the District of Columbia. Of those people, 82 percent, or about 2.1 million people, qualified for subsidies.

The subsidies are available to people whose incomes are between 100 percent and 400 percent of the federal poverty level. For a family of four, that's between about $24,000 and $95,400 annually.

In a report issued Thursday, the consultancy Avalere Health said that if those subsidies were removed this year from the 4.7 million people who received them in states, their premiums would have been an average of 76 percent higher in price than what they are paying now.

Another report by the Robert Wood Johnson Foundation and the Urban Institute estimated that by 2016, about 7.3 million enrollees who would have qualified for financial assistance will be lose access to about $36.1 billion in subsidies if those court challenges succeed.

Before the decision, a leading Obamacare expert who was firmly opposed to the plantiffs' arguments said a ruling in their favor could have major consequences for the health-care reform law.

"If the courts were to decide that the Halbig plaintiffs were right, it would be a huge threat to the ACA," said that expert,Timothy Jost, a professor at the Washington and Lee University School of Law.

 "It's a very big deal," said Ron Pollack, founder of the health-care consumers advocacy group Families USA, and Enroll America, a major Obamacare advocacy group.

Pollack noted that the more than 5 million people who have received subsidies via "would have them taken away."

"It certainly would cause a lot of people to rejoin the ranks of the uninsured," Pollack said. "The provision of the tax credit premium subsidy makes a huge difference in terms of whether people considering enrollment or enrolling in coverage will find such coverage affordable."

Last week, two analyses underscored the potential effects of the subsidies ultimately being deemed illegal.

The consultancy Avalere Health said people who currently receive such subsidies in the affected states would see their premium rates raise an average of 76 percent.

 And if the challenge prevail, a total of about 8.3 million individuals will be "free" of Obamacare's rule that they have health insurance or pay a fine equal to as much as 1 percent of their taxable income, said Cannon, who with law professor Jonathan Adler laid the groundwork for the challenges to the subsidies.

Oral arguments heard by a three-judge panel on that DC federal appeals court in March—when two of the judges appeared sympathetic to the plaintiffs—gave Halbig supporters renewed hope that their claim would succeed.

 Halbig was the first of those cases decided at the appellate level.

In the other case that has been heard on appeal, one first filed in Virginia federal district court, the 4th U.S. Circuit Court of Appeals is expected to issue a ruling any day.

However, that circuit is widely expected to rule against the plaintiffs' claims challenging the legality of the Obamacare subsidies on

--By CNBC's Dan Mangan

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"A top federal appeals court threw out its IRS regulation that implements key Obamacare health insurance subsidies."

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From the start, signs of trouble at health portal

From the start, signs of trouble at health portal | Cultural Trendz |

Published: October 12, 2013

WASHINGTON — In March, Henry Chao, the chief digital architect for the Obama administration’s new online insurance marketplace, told industry executives that he was deeply worried about the Web site’s debut. “Let’s just make sure it’s not a third-world experience,” he told them.
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"So much testing of the new system was so far behind schedule, I was not confident it would work well."

Two weeks after the rollout, few would say his hopes were realized.

For the past 12 days, a system costing more than $400 million and billed as a one-stop click-and-go hub for citizens seeking health insurance has thwarted the efforts of millions to simply log in. The growing national outcry has deeply embarrassed the White House, which has refused to say how many people have enrolled through the federal exchange.

Even some supporters of the Affordable Care Act worry that the flaws in the system, if not quickly fixed, could threaten the fiscal health of the insurance initiative, which depends on throngs of customers to spread the risk and keep prices low.

“These are not glitches,” said an insurance executive who has participated in many conference calls on the federal exchange. Like many people interviewed for this article, the executive spoke on the condition of anonymity, saying he did not wish to alienate the federal officials with whom he works. “The extent of the problems is pretty enormous. At the end of our calls, people say, ‘It’s awful, just awful.' ”

Interviews with two dozen contractors, current and former government officials, insurance executives and consumer advocates, as well as an examination of confidential administration documents, point to a series of missteps — financial, technical and managerial — that led to the troubles.

Politics made things worse. To avoid giving ammunition to Republicans opposed to the project, the administration put off issuing several major rules until after last November’s elections. The Republican-controlled House blocked funds. More than 30 states refused to set up their own exchanges, requiring the federal government to vastly expand its project in unexpected ways.

The stakes rose even higher when Congressional opponents forced a government shutdown in the latest fight over the health care law, which will require most Americans to have health insurance. Administration officials dug in their heels, repeatedly insisting that the project was on track despite evidence to the contrary.

Dr. Donald M. Berwick, the administrator of the federal Centers for Medicare and Medicaid Services in 2010 and 2011, said the time and budgetary pressures were a constant worry. “The staff was heroic and dedicated, but we did not have enough money, and we all knew that,” he said in an interview on Friday.

Administration officials have said there is plenty of time to resolve the problems before the mid-December deadline to sign up for coverage that begins Jan. 1 and the March 31 deadline for coverage that starts later. A round-the-clock effort is under way, with the government leaning more heavily on the major contractors, including the United States subsidiary of the Montreal-based CGI Group and Booz Allen Hamilton.

One person familiar with the system’s development said that the project was now roughly 70 percent of the way toward operating properly, but that predictions varied on when the remaining 30 percent would be done. “I’ve heard as little as two weeks or as much as a couple of months,” that person said. Others warned that the fixes themselves were creating new problems, and said that the full extent of the problems might not be known because so many consumers had been stymied at the first step in the application process.

Confidential progress reports from the Health and Human Services Department show that senior officials repeatedly expressed doubts that the computer systems for the federal exchange would be ready on time, blaming delayed regulations, a lack of resources and other factors.

Deadline after deadline was missed. The biggest contractor, CGI Federal, was awarded its $94 million contract in December 2011. But the government was so slow in issuing specifications that the firm did not start writing software code until this spring, according to people familiar with the process. As late as the last week of September, officials were still changing features of the Web site,, and debating whether consumers should be required to register and create password-protected accounts before they could shop for health plans.

One highly unusual decision, reached early in the project, proved critical: the Medicare and Medicaid agency assumed the role of project quarterback, responsible for making sure each separately designed database and piece of software worked with the others, instead of assigning that task to a lead contractor.

Some people intimately involved in the project seriously doubted that the agency had the in-house capability to handle such a mammoth technical task of software engineering while simultaneously supervising 55 contractors. An internal government progress report in September 2011 identified a lack of employees “to manage the multiple activities and contractors happening concurrently” as a “major risk” to the whole project.

While some branches of the military have large software engineering departments capable of acting as the so-called system integrator, often on medium-size weapons projects, the rest of the federal government typically does not, said Stan Soloway, the president and chief executive of the Professional Services Council, which represents 350 government contractors. CGI officials have publicly said that while their company created the system’s overall software framework, the Medicare and Medicaid agency was responsible for integrating and testing all the combined components.

By early this year, people inside and outside the federal bureaucracy were raising red flags. “We foresee a train wreck,” an insurance executive working on information technology said in a February interview. “We don’t have the I.T. specifications. The level of angst in health plans is growing by leaps and bounds. The political people in the administration do not understand how far behind they are.”

The Government Accountability Office, an investigative arm of Congress, warned in June that many challenges had to be overcome before the Oct. 1 rollout.

“So much testing of the new system was so far behind schedule, I was not confident it would work well,” Richard S. Foster, who retired in January as chief actuary of the Medicare program, said in an interview last week.

But Mr. Chao’s superiors at the Department of Health and Human Services told him, in effect, that failure was not an option, according to people who have spoken with him. Nor was rolling out the system in stages or on a smaller scale, as companies like Google typically do so that problems can more easily and quietly be fixed. Former government officials say the White House, which was calling the shots, feared that any backtracking would further embolden Republican critics who were trying to repeal the health care law.

Marilyn B. Tavenner, the administrator of the Centers for Medicare and Medicaid Services, and Kathleen Sebelius, the secretary of health and human services, both insisted in July that the project was not in trouble. Last month, Gary M. Cohen, the federal official in charge of health insurance exchanges, promised federal legislators that on Oct. 1, “consumers will be able to go online, they’ll be able to get a determination of what tax subsidies they are eligible for, they’ll be able to see the premium net of subsidy,” and they will be able to sign up.

But just a trickle of the 14.6 million people who have visited the federal exchange so far have managed to enroll in insurance plans, according to executives of major insurance companies who receive enrollment files from the government. And some of those enrollments are marred by mistakes. Insurance executives said the government had sent some enrollment files to the wrong insurer, confusing companies that have similar names but are in different states. Other files were unusable because crucial information was missing, they said.

Many users of the federal exchange were stuck at square one. A New York Times researcher, for instance, managed to register at 6 a.m. on Oct. 1. But despite more than 40 attempts over the next 11 days, she was never able to log in. Her last attempts led her to a blank screen.

Neither Ms. Tavenner nor other agency officials would answer questions about the exchange or its performance last week.

Worried about their reputations, contractors are now publicly distancing themselves from the troubled parts of the federally run project. Eric Gundersen, the president of Development Seed, emphasized that his company had built the home page of but had nothing to do with what happened after a user hit the “Apply Now” button.

Senior executives at Oracle, a subcontractor based in California that provided identity management software used in the registration process that has frustrated so many users, defended the company’s work. “Our software is running properly,” said Deborah Hellinger, Oracle’s vice president for corporate communications. The identical software has been widely used in complex systems, she said.

The serious technical problems threaten to obscure what some see as a nationwide demonstration of a desire for more affordable health insurance. The government has been heavily promoting the site as the best source of information on health insurance. An August government e-mail said: “35 days to open enrollment.” A September e-mail followed: “5 days to open enrollment. Don’t wait another minute.”

The response was huge. Insurance companies report much higher traffic on their Web sites and many more callers to their phone lines than predicted.

That made the flawed opening all the more disappointing to supporters of the health plan, including Timothy S. Jost, a law professor and a consumer representative to the National Association of Insurance Commissioners.

“Even if a fix happens quickly, I remain very disappointed that the Department of Health and Human Services was not better prepared for the rollout,” he said.

Vilma Bonilla's insight:

"Interviews and an examination of confidential documents point to a series of missteps — financial, technical and managerial — that led to the troubles with the new online insurance marketplace."

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Obamacare websites worked great, with a few small exceptions. And a bunch of big exceptions.

Obamacare websites worked great, with a few small exceptions. And a bunch of big exceptions. | Cultural Trendz |

When a tech company launches a hotly anticipated new Web-based service, there’s always the chance that something will go wrong. So it didn’t exactly come as a shock on Tuesday morning to discover that the same applies to government agencies. Indeed, many anticipated that there would be glitches as 14 states and the District of Columbia rolled out their own separate online health-insurance exchanges, while the federal government fielded applications on behalf of dozens of other states that declined to set up their own websites. “We’re building a complicated piece of technology,” Health and Human Services Secretary Kathleen Sebelius told reporters on Monday, a day ahead of the launch, “and hopefully you’ll give us the same slack you give Apple.”

Clearly Sebelius is not an avid reader of tech blogs. That aside, her plea for patience had some merit. Of course people can forgive a few technical bugs if it means finally gaining access to decent health care. And unlike Apple, state governments don’t have billions of spare dollars lying around to hire the world’s top engineering talent.

To their credit, most of the states did manage to get some semblance of an online system up and running by the end of the day. But not before almost every single state ran into glitches, problems, delays, or confusions of one sort or another. In short, for a lot of people trying to apply for healthcare coverage on Tuesday, the experience was the cyberspace equivalent of a bad trip to the DMV. Watch as, one by one, the Twitter feeds for each state’s health-insurance marketplace greeted the new day with high hopes and exclamation points—followed inevitably by apologies and requests for patience as the visitors rolled in...

The problems don’t appear to have been the result of any concerted hacking campaigns—just a bunch of websites that weren’t prepared to handle the loads they encountered on Tuesday morning. On the plus side, the deadline for signing up isn’t until December 15. So take my colleague Matt Yglesias’ advice and chill out for a little while, then give the sites another spin in a week or so. And if you still encounter delays—hey, at least you’re at home on your couch and not stuck in line at the DMV. Or, worse, mistakenly driving your car across an airport runway.


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White House Launches Health Care 'Web Wizard' | Small Biz

White House Launches Health Care 'Web Wizard' | Small Biz | Cultural Trendz |

In response to concerned small business owners, the White House created a website to answer Affordable Care Act questions.


Got a question about Affordable Care Act? Now there's a government website dedicated to answering the questions of business owners.

Officially launched on Thursday as part of BusinessUSA, a little-known platform that provides businesses with easy access to government services, the new site helps owners understand what they need to know about new insurance options and other ACA changes.

"The goal with the tool is to put the information--if there is unique information to your state, your location, let's put it right there at your fingertips along with the other information that may be more applicable across the board," a senior White House official told CNN.

In order to obtain the correct information, business owners can select their state, the size of their company--whether they're self-employed, fewer than 25 full-time employees (FTE), up to 50 FTE, 50 or more FTE--and whether they currently offer insurance. The results generated by the wizard provide employers with information ranging from the definition of Health Insurance Marketplace to a timeline of implementation for key ACA features. The site also explains how certain penalties are calculated.

The White House hopes this newest effort will help clear up some of the misconceptions about the ACA and how it will affect small businesses. Currently, most small business owners report concerns over health care reform and expect that it will make their health care coverage more expensive.  

"We hear from business owners all the time that they just want to know what the facts are because they're going to sit down and make their own decision based on what makes them most competitive," the White House official told CNN.

The Obama administration will continue to update the health care wizard as more information becomes available and plans to include interactive features, including cost calculators.

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This new flagship federal .gov website is "open by design, open by default." That's a huge win for the American people.

As the first website to be demonstrated by a sitting President of the United States, already occupies an unusual place in history. In October, it will take on an even more important historic role, guiding millions of Americans through the process of choosing health insurance.

How a website is built or designed may seem mundane to many people, but when the site in question is focused upon such an important function, what it looks like and how it works matter. Last week, the United States Department of Health and Human Services (HHS) relaunched with a new appearance and modern technology that is unusual in federal-government websites.

"It's fast, built in static HTML, completely scalable and secure," said Bryan Sivak, chief technology officer of HHS, in an interview. "It's basically setting up a web server. That's the beauty of it." What makes such an ambitious experiment in social coding more unusual is that the larger political and health-care policy context that it's being been built within is more fraught with tension and scrutiny than any other arena in the federal government.

The implementation and outcomes of the Affordable Care Act -- AKA "Obamacare" -- will affect millions of people, from the premiums they pay to the incentives for the health care they receive. "The goal is get people enrolled," said Sivak. "A step to that goal is to build a health insurance marketplace. It is so much better to build it in a way that's open, transparent and enables updates. This is better than a big block of proprietary code locked up in a CMS [content management system]."

Thinking differently about a .gov
The new site has been built in public for months, iteratively created on Github using cutting edge open-source technologies. is the rarest of birds: a next-generation website that also happens to be a .gov.

"We needed to evolve from the previous site but didn't want a total departure," said Ed Mullen, a user experience designer who has worked on since it was first launched, in an interview. "The web has changed dramatically in that time. Part of adapting to that [change] has been creating a site that really understands consumers. Today, consumers are doing all kinds of things across the web. We're comparing ourselves to Rdio and similar services. We want to be aligned with the current thinking of the Web."

The people that helped to build the new are unusual: Instead of some obscure sub-contractor in a nameless office park in northern Virginia, the site was iteratively created by a cross-disciplinary team of developers and editors at HHS, and contractors at Teal Design, Edward Mullen Studio, and Development Seed, a scrappy startup in a garage in the District of Columbia.

"This is such a lean site," said Jon Booth, head of the web and new media group at the Centers for Medicare and Medicaid Services (CMS), in an interview. "HHS had a blanket contract when we when awarded this. Aquilent got creative and brought people on with powerful skills, like Ed and Jessica, a designer at Teal Media, and Development Seed. Most of my team is working on this site; we have internal UX, information architects, designers, developers, and infrastructure people that stood up the cloud environment. Their collaboration is one of the high points of this process."

The involvement of Development Seed drove specific technology choices that led to substantial improvements in design and function. The startup first made its mark in the DC tech scene consulting on Drupal, an open source content management system that has become popular in the federal government over the past several years. Recently, Development Seed has been pushing the limits of lightweight Web design, open data-driven maps and open-source code.

"This is our ultimate dogfooding experience," said Eric Gundersen, the co-founder of Development Seed, in an interview. "We're going to build it and then buy insurance through it."

"The work that they're doing is amazing," said Sivak, "like how they organize their sprints and code. It's incredible what can happen when you give a team of talented developers and managers and let them go."

The new will fill a yawning gap in the technology infrastructure deployed to support the mammoth law, providing a federal choice engine for the more than 30 different states that did not develop their own health-insurance exchanges, but the site is just one component of the insurance exchanges. Others may not be ready by the October deadline. According to a recent report from the Government Accountability Office, the Department of Health and Human Services' (HHS) Centers for Medicare & Medicaid Services (CMS) is behind in implementing key aspects of the law, such as training the workers who will help people navigate the process, certifying the plans that will be sold on the exchanges, and determining the eligibility of consumers for federal subsidies. Despite all this, HHS expressed confidence to the GAO that exchanges will be open and functioning in every state on October 1.

On that day, will be the primary interface for Americans to learn about and shop for health insurance, as Dave Cole, a lead developer at Development Seed, wrote in a blog post this March. Cole, who served as a senior advisor to the United States chief information officer and deputy director of new media