By Susan Rupe
All eyes will be on Congress, rather than the states, if the Supreme Court should rule that subsidies offered on the federal health care exchange are illegal.
That’s the opinion of Ken Fasola, CEO of HealthMarkets, a health insurance web broker.
“States such as Florida and Texas will have the most to lose if the subsidies go away because of their large numbers of people who are getting insurance through the federal exchange and qualify for subsidies,” he said. “But politically, I don’t think those states want to do anything about fixing the system. So the states will look to Congress to come up with a solution, as will the insurers.”
A number of carriers may leave the marketplace if consumers can no longer afford to buy coverage without subsidies, he predicted.
And what about consumers who already bought coverage with the knowledge that they would receive a subsidy to help pay for it? What happens to them now? Fasola said his company has been doing what he called “scenario planning” to see what opportunities there may be to keep those consumers in coverage.
“We may have to look at getting people into short-term coverage or even hospital indemnity plans at mid-year,” he said. “It’s not a perfect solution but it’s the difference between something and nothing for clients.”
Another issue to consider, he said, is the technology surrounding HealthCare.gov. Now that the open enrollment season is over, consumers can’t go back online to buy coverage unless they experience a “qualifying event.”
“Will the government go back and turn the technology back on to help people if they lose their subsidies mid-year?” he asked.
Meanwhile, one of the Supreme Court justices considered to be a swing vote on the latest Affordable Care Act (ACA) challenge could possibly be leaning toward keeping the subsidies on the federal exchange, according to an observer.
Joel Ario said that he believes Justice Anthony Kennedy “clearly gets how damaging it would be to the state marketplaces if the subsidies were to go away.”
Ario, former Pennsylvania Insurance Commissioner who is managing director for Manatt Health Solutions, said that he was most impressed by Kennedy’s comments that the elimination of federal subsidies “would lead to total deterioration in the marketplaces.”
“That tells me that he understands the crippling effect it would have on the state marketplaces,” Ario said.
On Wednesday, oral arguments were heard in the latest ACA challenge to come before the high court. The case known as King v. Burwell hinges on four words in the language of the ACA: “established by the state.” The plaintiffs contend that the subsidies were intended to be distributed only to those who bought insurance on a state-run exchange, and not on HealthCare?.gov. ACA supporters say the law was always intended to provide the subsidies to people who bought coverage on the federal exchanges as well.
Ario said another concern about a possible ruling against the subsidies would be the effect it would have on insurance rates for 2016. A court ruling is scheduled to be handed down in June and insurers will have their 2016 rates set in July.
In a Feb. 25 Commonwealth Foundation blog post, Ario wrote: “Insurance regulators have not determined whether they will allow insurers to change their rates in the event of a Subsidy Shutdown, but insurers would have the option of exiting the market on the eve of the 2016 open enrollment period. For this reason, insurers are already discussing with regulators about proposing two sets of rates at an earlier stage of the review process, perhaps this spring. Raising rates would help maintain insurer participation, but it certainly is no panacea: higher rates would drive more customers out of the market, further accelerating the death spiral of escalating rates and shrinking enrollment.”
Avalere Health researchers listed a number of possible fixes to the subsidy problem if the court rules against the federal subsidies. But those fixes have political challenges that make implementing them difficult. For example, Avalere said, Congress could take action to avoid the loss of the tax credits. Leading Republicans in the House and Senate indicate that Congress could create a short-term “patch” that maintains tax credits, while Congress works on an alternative to the ACA. However, it may be difficult to obtain the necessary votes to do this.
The states that chose to default to the federal exchange could establish their own exchanges. However, 21 of the 34 states that will potentially be impacted are controlled by Republican governors and Republican legislatures. At least six states prohibit the governor from acting on ACA implementation without legislative approval.
One industry observer who believes that the tax credits should be applied across the board is Sally Poblete, CEO of Wellthie, a software company that provides services to health care website providers.
“As the name of the law – the Affordable Care Act – implies, Congress intended for the broad population of Americans to get insurance in the most affordable way for them,” she said. “The tax credits were the way to make that insurance affordable. I am hopeful that the justices will rule in favor of keeping the tax credits for those in all 50 states.”
If the justices rule against the subsidies in the federal exchange, “there will be broad-reaching consequences,” Poblete said. Those who bought coverage using the tax credits will find they can no longer afford it. If they drop their coverage, the risk pool will contain either those who can afford to keep their coverage or those who are too sick to risk losing their coverage. “The result will be that the costs will keep going up for everyone,” she said.
According to an analysis released by Avalere Health, at least 7.5 million consumers are currently subsidized through the federal exchange. A ruling against the subsidies will likely have the greatest impact in Texas, Florida, Georgia and North Carolina, where more than 400,000 consumers would be affected in each state.
Eighty-seven percent of federal exchange consumers are subsidized, with their tax credits paying for 72 percent of their premium on average, Avalere said. Data released last week find that average required premium contributions would rise 255 percent in federal exchange states, if the subsidies are struck down.
If the high court strikes down the legality of the subsidies on the federal exchange, it will mean that consumers in the 34 states that did not create their own health care marketplaces will no longer be eligible for the tax credits that help to keep the premium costs down for those with low and moderate incomes. Without these subsidies, many fear that the Affordable Care Act (ACA) will be driven into a “death spiral” where more consumers will opt to forgo coverage because it will be cheaper for them to pay the penalty compared with paying the unsubsidized cost of health insurance. Having fewer people in the risk pool would unravel ACA.
But we’ll have to wait until June for the court to hand down its decision on the issue of subsidies. A ruling against the subsidies on the federal exchange would not mean that the ACA is unconstitutional. But low to moderate-income people who depended on the subsidies to make their coverage affordable will find that they can no longer afford the health insurance that the law mandated they purchase.
Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com.