What’s this I hear about supreme court hearing arguments on Affordable Care Act on Wednesday? I thought that was decided ages ago.
If only it were that simple.
Yes, the court did uphold the Affordable Care Act in 2012 after it ruled that the individual mandate was constitutional because it was a form of tax. On Wednesday, the justices will hear oral arguments in King v Burwell. This time, the court has to decide if the states that didn’t create their own healthcare exchanges and instead relied on the federal marketplace were allowed to provide subsidies.
The case was brought by four residents of Virginia: David King, Douglas Hurst, Brenda Levy and Rose Luck. Virginia is a state that uses a federally run marketplace. The four plaintiffs claim that if they didn’t qualify for the subsidies offered on the marketplace, they wouldn’t be able to afford the insurance and would therefore be exempt from having to buy it under the Affordable Care Act.
OK. Why is this important?
Subsidies are the tax credits that made the health insurance sold on the exchanges affordable for majority of the people that bought it. About 85% of those who bought insurance in the states that used the federal marketplace qualified for a subsidy. If the court rules with the plaintiffs, all of those people will lose their subsidies and the cost of insurance will go up significantly.
Define significantly.
The most immediate effect will be felt by the millions of Americans who will lose their subsidies.
“Absent the federal subsidies, those consumers would face premiums that are 100% to 300% higher,” says Kip Piper, expert on ACA and health insurance exchanges. “It is likely most simply cannot afford full unsubsidized premiums.”
Similarly, an analysis by the Urban Institute predicts that many of those who will lose their subsidies won’t be able to afford it without them and will cancel their insurance as a result. They estimate that this would lead to 8.2 million more uninsured. With these individuals leaving the marketplace, they estimate the premiums will go up by 35%.
Another analysis by Rand Corporation estimates that unsubsidized premiums in states that rely on the federal marketplace will go up by as much as 47%. That translates to about $1,610 increase a year for a 40-year-old non-smoker, who bought a silver plan.
Remind me: why could the subsidies be considered illegal in the first place?
It all comes down to how the Affordable Care Act was written. The bill is about 2,700 pages long, but this case is really about four words in the entire legislation. You see, as it was originally written, the bill states that subsidies can be provided only to people who purchased their health insurance plans through exchanges “established by the states”.
Are you serious?
Yup.
Why don’t they just change the four words?
Because that would be too easy.
With Republicans in control of the House and the Senate, there is a small chance that the Obama administration will get help on this matter. Consider this: just last month, 53% of 1,500 Americans surveyed by Pew Research Center said they disapprove of the Affordable Care Act. About 45% of them believe that the law’s major provisions will be eliminated.
But if it’s clear that the Congress that passed the bill didn’t intend this to happen, why can’t the supreme court just uphold it?
They might not uphold it if they are worried about setting a precedent for future interpretations of laws like this one.
President Obama, however, insists that there is “not a plausible legal basis for striking it down”. In an interview with Reuters, he said:
If you look at the law, if you look at the testimony of those who are involved in the law, including some of the opponents of the law, the understanding was that people who joined a federal exchange were going to be able to access tax credits just like if they went through a state exchange.
If they strike it down, what will it mean? Am I going to be paying more for insurance?
Well, it depends on where you live.
OK ...
If you live in one of the states that created their own exchanges, you might not be affected. However, if you live in one of the states that is using the federally mandated exchange and receive a subsidy, you will have to pay your health insurance premiums in full if the court rules with the plaintiffs.
So say, I live in a state like New York or Idaho that has their own exchange. When will my price go up?
Well, it depends.
That’s a lot of ’depends’! My head is starting to hurt.
I know. Bear with me.
Ultimately, if the court rules that the subsidies are illegal, everyone will end up paying more for their insurance. The only way that the Affordable Care Act was going to work and keep health insurance affordable was through widespread participation, especially participation of healthy consumers.
Loss of subsidies could lead to healthy consumers leaving the marketplace. Those with chronic conditions, on the other hand, are likely to keep paying for their insurance creating a risk pool of mostly high-cost consumers, says Piper.
This can lead to what some refer to as a “death spiral” – or a collapse of a local exchange in a place where the insurance pool keeps getting smaller, sicker and more expensive.
“Under the rigid insurance market rules mandated by the ACA – including the prohibition against insurers charging the unhealthy higher premiums than the healthy – a meltdown of at least some of the exchanges is likely,” says Piper. “The overall individual market would be unstable outside the exchanges as well.”
How fast a “death spiral” occurs depends on how fast healthy consumers leave the marketplace.
Oh boy.
We haven’t even gotten to the most troubling part yet.
It gets worse?
It could. Think about this: what if the supreme court decides that the plaintiffs’ interpretation of the law is correct and the subsidies are illegal? What happens to all the subsidies that have already been paid out? Who pays them back – the consumers who received the discounted health coverage or the insurers who actually got the money?
They wouldn’t …
Who knows! These are just some of the questions that government and the court might have to answer if the court rules in favor of the plaintiffs.
“It is inconceivable that this or any future administration would attempt to recover prior subsidy payments,” says Piper. “The Obama administration will likely waive recoveries and instruct the IRS not to attempt any recoupments. … If they believe they don’t have the authority to waive recoveries, then the Congress would need to step in.”
At the moment, the Obama administration has no plan B because the president doesn’t believe the court will rule against the subsidies. Sylvia Burwell, the health and human services secretary, who is named as the defendant in the case, has previously said that there is no plan to deal with the potential loss of subsidies in the 34 states without their own exchanges.
“If they rule against us, we’ll have to take a look at what our options are. But I’m not going to anticipate that. I’m not going to anticipate bad law,” Obama told Reuters.
Does Congress have a plan? At all?
They say they do. On Sunday, three senators – Lamar Alexander, Orrin Hatch, and John Barrasso – wrote an op-ed for the Washington Post that said that if Americans lose their subsidies: “Republicans have a plan to protect Americans harmed by the administration’s actions.”
Which is?
A “plan to create a bridge away from Obamacare.” Congress would provide affected Americans with financial assistance to keep their health plans for a “transitional period”. The plan would also “give states the freedom and flexibility to create better, more competitive health insurance markets offering more options and different choices.”
Hmm. Does anyone else have a plan?
What? You don’t like their plan?
It’s kind of vague, no?
You’re not the only one that thinks so. Ezra Klein agrees. According to him, this plan is a ploy to get the supreme court to vote against the subsidies.
“Republicans want to persuade five members of the supreme court that it’s safe to rule against Obamacare – they want the justices to feel secure that Republicans will fix the mess, rather than letting it become a sucking wound that turns the country against the GOP and the Roberts court,” he writes over at Vox.
So, does anyone have another plan?
There is one more, but you aren’t going to like it.
Just tell me. Get it over with.
The insurers seem to be preparing for the worst. The American Academy of Actuaries’ Health Practice Council wrote to Burwell last week asking her to allow insurance companies to revise their premium prices for 2016 if the court rules in favor of the plaintiffs.
Which, you know, is smart thinking on their part. “Some internal scenario planning by insurers is wise,” says Piper.
Oh man. It begins!
Not so fast. There are some who remain hopeful that a solution will be found in time.
“Loss of subsidies would likely be an action-forcing event to spur bipartisan action to resolve the issue promptly,” says Cynthia Michener, a spokeswoman for the insurance giant Aetna. “We are having conversations on both sides of the aisle about how to make a grand bargain should the supreme court decide against federal exchange subsidies, the things you change in the ACA to resolve the issue.”
When speaking at Aetna’s earnings call in early February, the chairman and CEO, Mark Bertolini, also sounded hopeful.
“I think there’s a lot of conversation going on, on what kind of continuance we would need, if any, to get through the end of the year. What kind of solutions would be offered by both sides to get to a place where the program would just not abandon people,” he said at the time.
Aetna has a lot at stake, too. By the end of the first quarter, the company expects to have 800,000 on-exchange members in 16 states and District of Columbia. All of the 16 states rely on the federal marketplace.
When will we know what the court has decided?
No one knows. Some say that the court could rule as early as May; others expect that the ruling will be handed down in June.
Well, I got to go. I have got a doctor to call, prescriptions to fill.
Right.
