As the U.S. Supreme Court nears its decision in the King v. Burwell case, lawmakers, insurers, the Obama administration and millions of Americans are stuck in a state of uncertainty, trying to prepare for a legal hurricane that may never make it ashore.
Later this month, the high court is expected to decide whether consumers in the 34 states that use the federal health insurance marketplace can continue to receive subsidies to help them purchase coverage.
The plaintiffs cite a section of the Affordable Care Act that says the subsidies, or tax credits, can be applied only to coverage purchased “through an exchange established by the State.” The Obama administration says a full reading of the health care law makes clear that Congress intended to provide the tax credits in all states.
If the court rules for the government, HealthCare.gov users can continue to receive financial assistance and the Affordable Care Act will have survived its second major Supreme Court challenge in the last three years.
But chaos will ensue if the court agrees with the plaintiffs that the tax credits can go only to people in the 16 states, along with Washington, D.C., that run their own insurance marketplaces.
That outcome could leave 6.4 million people in 34 states with no financial help to pay for health insurance coverage, which is required by law.
Are states likely to respond to a loss of healthcare subsidies?
In King v. Burwell the Supreme Court is considering whether subsidies for insurance purchased through Healthcare.gov are legal under the Affordable Care Act. If the benefits are eliminated, the 34 states without state-based marketplaces (SBMs) can wait to see if Congress implements a fix or try to establish an insurance exchange of their own.
How governors have indicated they may respond to a ruling for King:
Actively planning for loss of subsidies
Currently taking a “wait and see” approach
Would wait for a federal fix
Would not create an exchange
No statement
SBM state
Enrollment in the federal marketplace by state:
More than 500,000 enrollees
200,001 to 500,000
100,001 to 200,000
50,001 to 100,000
50,000 or fewer
SBM state (no federal enrollees)
Source: Leavitt Partners' "Briefing Document: Possible Scenarios under a SCOTUS ruling in favor of King" and Centers for Medicare and Medicaid Services
On average, these low- and middle-income Americans would lose $272 per month – $3,264 per year – in federal subsidies.
Without the money, their out-of-pocket premium contributions could jump an average of 255 percent this year, according to an analysis by Avalere Health, an advisory company.
The extra cost would force many to simply drop coverage, which would undo much of the progress the health care law has made in reducing the number of uninsured Americans.
“If they have to pay full freight, they’re not staying around unless they’re sick” and really need the coverage, said Gary Claxton, a vice president at the Henry J. Kaiser Family Foundation, a health care policy-research and communications group. “So you have a situation where, very quickly, this market can become very small and very sick.”
The loss of coverage would likely shrink the individual health insurance market by 69 percent, or 9.8 million people by next year, according to the Urban Institute, a centrist research center. Some 6.3 million would ultimately become uninsured. Premiums would skyrocket for sicker, costlier plan members, who are most likely to retain coverage.
That prospect, and the resulting political and economic fallout, is sending shivers through insurance company offices and political halls of power nationwide.
Even congressional Republicans, who’ve voted more than 50 times to repeal the Affordable Care Act, are offering contingency plans, fearing their support for a plaintiff victory could hurt them in the 2016 elections.
The Obama administration says there’s nothing it can do to mitigate the damage from a government loss in the case. But many think the Department of Health and Human Services is quietly developing plans.
“They have to be thinking about something,” said Dan Schuyler, a senior director at Leavitt Partners, which consults with states on implementing the Affordable Care Act. “In a King verdict, there will have to be some kind of contingency put forward by the administration. What that looks like, we don’t know. . . . We don’t have any substantive data to support what they’re thinking about.”
If the court kills the subsidies for the federal marketplace, it’s unclear how long it would take for the U.S. Treasury to stop providing the money. The justices could provide a transition period, allowing the subsidies to continue while giving Congress time to pass a legislative fix.
Since GOP majorities in both houses of Congress oppose the health care law, it’s unlikely that Congress would amend it to continue the tax credits. It’s more likely to pass legislation that temporarily extends the subsidies for up 18 months.
A bill by Sen. Ron Johnson, R-Wis., would do so through September 2017, long enough to make the subsidies a non-issue in the 2016 elections. Thirty-one Republican senators have backed the proposal, but the American Academy of Actuaries said the measure would be only a short-term fix.
“Even if a temporary extension of premium subsidies would help avoid disruption in the short term, it is likely that the disruption would be only delayed, not avoided altogether,” the academy brief noted. “If the subsidies are ultimately eliminated, potentially millions of individuals will drop coverage and premiums will increase substantially, unless other equally strong mechanisms are implemented.”
It’s also unclear whether the Obama administration would sign off on such a plan.
If the plaintiffs prevail, some think HHS might try to change the requirements for what constitutes a state-based marketplace in order to make it easier and faster for HealthCare.gov states to convert to state-run exchanges.
Under the health law, implementing a state marketplace is a lengthy, bureaucratic process that requires creating a board or entity to run it, getting input from the public, building the online marketplace, certifying health plans and other such requirements.
Schuyler said no state could meet those requirements in time for the 2016 enrollment season, which begins in November.
Whether the Obama administration could streamline and simplify that process without congressional approval is unclear, but “I’m assuming they would try to do something along that line,” Kaiser’s Claxton said. “They’re not going to say it, but I would think they would look at that if states asked for flexibility.”
But getting states to buy into such a proposal would be a tough sell in many of the 34 where political opposition to the Affordable Care Act remains strong. The administration would have to provide the states with lots of incentives and operational flexibility, Schuyler said.
“The question is how much flexibility or leverage does the administration have to redefine what a state-based marketplace is or can and cannot do?” Schuyler said. “We don’t know how far they can lower the bar, but they would have to lower the bar significantly to get (federal marketplace) states to move to a state-based marketplace.”
Any such plan is likely to be met with political and legal opposition. “I think there’s no question that whatever they do, short of a new law, they’ll be challenged,” Claxton said.”
In another option, Schuyler said the Obama administration could let insurers, private exchanges that serve businesses, and online insurance brokers act as a state marketplace by allowing them to sell qualified health plans and determine eligibility for premium subsidies.
Under this proposal of “direct enrollment,” states seeking to retain their subsidies wouldn’t have to build state-based marketplaces because these private-sector players could determine subsidy eligibility using the federal marketplace, Schuyler said.
Based on statements from governors in Arizona, Georgia, Louisiana, Mississippi, Missouri, Montana, Nebraska and South Carolina, those states are unlikely to try to reinstate the subsidies if the court bars their residents from receiving them, according to research by Leavitt Partners.
Delaware, Maine, New Hampshire, Ohio, Pennsylvania, South Dakota and Virginia are looking for ways to retain the subsidies, Schuyler said.
Other states such as Alaska, Arkansas, Iowa, Michigan, North Dakota, Oklahoma, Texas, West Virginia and Wyoming are taking a “wait and see” approach.
“They’re waiting for the actual verdict to decide what their contingency should be,” Schuyler said.
Florida, Indiana, North Carolina, Tennessee, Utah and Wisconsin are deferring to the Obama administration and Congress to come up with a fix, Schuyler said.
It’s unclear, according to Leavitt research, how the remaining federal marketplace states – Alabama, Illinois, Kansas and New Jersey – would respond to a plaintiff victory.
Claxton said insurers would want the administration and Congress to reach a legislative solution fairly quickly if the plaintiffs prevailed.
“Their big worry is that while everyone else is fighting and making up their minds, they could be losing a whole bunch of money,” Claxton said.
Clare Krusing, a spokeswoman for America’s Health Insurance Plans, said the industry must wait before it could formulate a course of action.
“Until we know exactly what the lay of the land is and what the market looks like after that decision, it’s impossible to outline at this point what specific policy changes will need to be in place,” Krusing said.