The Supreme Court’s surprising decision to take-up a case challenging the government’s authority to provide tax credits to individuals receiving health care coverage through the Affordable Care Act’s federally-run insurance marketplace could result in serious implications for Obamacare beneficiaries and the 36 states that have refused to establish their own exchanges. In fact, should the Supreme Court eliminate the tax credits for the millions who have enrolled in coverage through the federally-run marketplaces, the consequences wouldn’t be too dissimilar from stripping out the law’s individual mandate — something the justices refused to do in 2012.
To summarize, the plaintiffs in this case — who are mostly Republican operatives or conservative ideologues seeking to gut the law — are arguing that the ACA never intended to provide subsidies to federally-run exchanges in order to cajole states to establish their own marketplaces. They highlight two places in Obamacare where the subsidies appear to be tied to “an Exchange established by the State under 1311” and not the federal government.
The Obama administration notes that the Supreme Court has long recognized that a reviewing court “should not confine itself to examining a particular statutory provision in isolation.” It must consider the law in full.
The Affordable Care Act authorizes the Secretary of Health and Human Services to stand in the state’s shoes when she runs an exchange on behalf of that state — thus acting as the state in building a marketplace — and includes numerous other sections that contradict the plaintiff’s assertion. The law as a whole also intends to provide everyone with affordable coverage, the administration argues, and its authors attest that they never meant to “limit financial help only to people in states opting to directly run health insurance marketplaces.” The IRS had agreed with this interpretation and has upheld the legality of the subsidies. (Courts have generally deferred to an agency’s interpretive authority.)
But to understand the consequences of stripping away subsidies from the 5.4 million Americans who are currently enrolled in insurance through a federal exchange — and are receiving subsidies — one only need to look at the table below from the RAND Corporation. The research group ran the numbers for what would happen if the subsidies simply went away and here is what it came up with:
In short: higher health care costs, lower enrollment, and a higher number of uninsured Americans.
Enrollees who are eligible for the law’s subsidies — with incomes between 100 and 400 percent of the federal poverty level — “pay no more than a fixed percentage of their income for the second-lowest-cost silver plan available in their rating area,” RAND explains. This structure cushions “enrollees against premium increases due to other people’s enrollment decisions and guards against a cycle of premium increases and subsequent disenrollment.”
Take that away and these five things will happen:
1. Millions of people will see triple digit premium hikes.
87 percent of the 5.4 million people enrolled in the federal marketplaces picked a plan using federal tax credits, lowering the amount of what they paid for their monthly premium from $346 to $82, on average. Without the tax credits, these families would be paying an average of $264 more per month, a 322 percent increase. Analysis from the Kaiser Family Foundation has also found that most of the individuals receiving subsidies are working families without access to employer-based coverage, earning between 200 and 300 percent of the federal poverty level. The subsidies paid for more than three-quarters of the cost of their premiums making it unlikely that they would be able to afford insurance otherwise.
2. Millions of people will lose health care coverage.
The Urban Institute estimate of eliminating subsidies from federally-run exchanges found that 7.3 million people could lose out on $36.1 billion in subsidies by 2016.
3. Obamacare will face a death spiral.
The RAND study found that “in scenarios in which the tax credits are eliminated, our model predicts a near ‘death spiral,’ with very sharp premium increases and drastic declines in individual market enrollment.” Health economists believe that sick people who need care will sign up for coverage, no matter the cost. Healthy people generally don’t and so the individual health care mandate and the subsidies act as inducements to encourage that group to enroll in coverage and balance out the cost of providing insurance to the sick. Eliminating the subsidies increases costs and discourages healthy people from remaining insured, leading to even higher premium increases and a very expensive risk pool full of sicker — and by definition more expensive — beneficiaries.
4. Insurers will advocate for repealing market protections.
Currently, insurers are prohibited from discriminating against individual with pre-existing health conditions and must offer everyone coverage at an average community rate. (Sick people or women cannot be charged more for coverage, for instance). But, if the pool of beneficiaries shrinks as coverage without subsidies becomes too expensive for healthy individuals, insurers will likely advocate to repeal these protections. The industry has spent millions on lobbying and political contributions guaranteeing that Congress will be more than happy to listen to its demands.
5. States will lose billions of dollars.
Without subsidies, families and individuals would lose $36.1 billion worth of subsidies in 2016, the Urban Institute estimates. These dollars trickle down to health care providers and have a sizable impact on state economies. “Losses would be as high as $4.8 billion in Florida and $5.6 billion in Texas,” Urban estimates and would especially hurt the states refusing to expand their Medicaid programs. Those states are already foregoing large amounts of federal dollars “while their providers are experiencing the Medicare and Medicaid payment cuts included in the law.”
6. The health of Americans living in red states will worsen.
While states with state-run marketplaces won’t experience a disruption, those that allowed the federal government to build their exchanges will. The latter are mostly run by Republican-leaning lawmakers and already have higher numbers of uninsured on average. A ruling in favor of the plaintiffs would thus perpetuate a health care divide between so-called blue and red states.
An amicus brief filed by health care economists in support of the Obama administration’s argument offers another consequences: higher premiums for insurance policies outside of the health care law’s exchanges.
Moreover, these effects would not be limited to just the Exchanges because the ACA explicitly requires insurers to treat as a single risk pool plans that are offered both inside and outside of an Exchange. See 42 U.S.C. § 18032(c)(1). The result is that as premiums inside the Exchanges rise, premiums outside the Exchanges will rise as well, making insurance less affordable not just for low- and middle-income individuals who might have qualified for subsidies, but also for the sizable population that has traditionally relied on the nongroup market for insurance – e.g., the self-employed, early retirees, individuals in employment transitions, and individuals employed by small businesses that do not offer insurance coverage. Again, given that Congress tied the fortunes of these groups together, it is implausible to construe the ACA as condemning them to massive premium increases.