Exactly what would happen to the Affordable Care Act if the Supreme Court invalidates tax credits in the three dozen states where the federal government runs the program?
Legal scholars say a decision like that would deal a potentially lethal blow to the law because it would undermine the government-run insurance marketplaces that are its backbone, as well as the mandate requiring most Americans to carry coverage.
The court in early 2015 is scheduled to hear King v. Burwell, a case that challenges the legality of tax credits in those states. The law’s opponents argue that Congress intended to limit the subsidies to residents of states running their own health insurance exchanges. Currently, only 13 states and the District of Columbia fully operate exchanges on their own; another 10 are in some sort of partnership with the federal government. Federal officials operate the rest.
Should the court find that subsidies in federally run exchanges are not allowed, “I don’t think there are any rosy scenarios here,” said Timothy Jost, a law professor at Washington and Lee University and a supporter of the health law. “It’s a complete disaster.”
The immediate impact is that the Internal Revenue Service would stop paying subsidies to those in federally run exchanges. In 2014, more than 4.6 million people were getting those subsidies. But by 2016, according to the Kaiser Family Foundation, the number could grow to as many as 13.4 million. (Kaiser Health News is an editorially independent program of the foundation.)
Most of those people losing subsidies would no longer be required by the “individual mandate” to have insurance, because they would fall into an exemption in the law for those who have to pay more than 8% of family income for health insurance premiums.
“Since a lot of people can’t afford insurance without the tax credits, you’re looking at a lot of people shedding coverage,” says Nicholas Bagley, a law professor at the University of Michigan.
Those who hang onto their coverage and pay the entire premium without help “are likely to be sicker on average than the people who shed their coverage,” says Bagley, “because they’re the ones who need insurance the most.”
Indeed, the insurance industry, through its trade group America’s Health Insurance Plans, argued in a legal brief for a related case that the elimination of the federal exchange subsidies could seriously undermine those markets, creating an insurance death spiral.
“When healthy individuals opt out of the individual insurance market, those who are left are, on average, less healthy (and therefore prone to higher-than-average medical expenses),” AHIP said in its brief. “A sicker pool of consumers results in higher premiums, which causes an additional relatively healthy subset of participants to drop out, which in turn results in a further increase in premiums.”
The impact also spreads beyond individuals who buy their own coverage, experts say. For example, eliminating subsidies for individuals also would eliminate the so-called “employer mandate” that seeks to require larger firms to provide coverage. That’s because the employer mandate merely requires employers to pay a fine if their employees obtain subsidies on the exchange. If there are no subsidies, there are no employer fines and thus, effectively, no mandate.
Meanwhile, says Jost, “hospitals that have started to have some real relief from uncompensated care are right back taking care of uninsured people.” In fact, he says, the problem of uninsured patients seeking hospital care could get worse because some people who had coverage in the old, unreformed individual market might have to drop it due to cost.
So what could be done? Clearly, states that are currently letting the federal government run their health exchange could establish their own marketplaces. But that’s problematic as well, for reasons both practical and political.
“The practical obstacle is that creating an exchange is not child’s play,” says Bagley. “An exchange has to be a governmental entity or a non-profit entity. They’ve got to be able to carry out a variety of functions,” including working with consumer assistance groups and overseeing compliance with the law’s requirements.
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SOURCE: USA Today / Kaiser Health News – Julie Rovner