In an early warning of what will happen if the Supreme Court backs a legal attack on the Affordable Care Act, the American Academy of Actuaries sent a letter to Secretary of Health and Human Services (HHS) Sylvia Burwell on Tuesday asking Burwell’s department to permit insurers to raise premiums if the justices vote to defund much of the law. According to the letter, a decision against Obamacare threatens many insurance companies’ “solvency,” unless those insurers are able to raise premiums in the wake of such a decision. Needless to say, if an insurer becomes insolvent, that endangers its customers’ ability to pay for their health care.
King v. Burwell is the lawsuit seeking to cut off tax credits that enable many people to pay for health insurance in close to three dozen states. Should this lawsuit succeed, millions of Americans will become uninsured and an estimated 9,800 will die every year.
The actuaries’ letter describes what will happen to the insurance industry itself as millions of American families are coping with their sudden inability to afford health care. “If federal premium tax credits are no longer available to eligible enrollees in FFM states, enrollment could decline precipitously,” the letter explains. “Moreover, individuals with high-cost health care needs would be more likely to remain enrolled, while those with low-cost health care needs would be more likely to exit the market.”
Once this cycle begins, it can potentially trigger a death spiral. As healthy people drop their insurance, the insurance companies themselves would no longer have the funds they need to cover their sick customers’ health costs — forcing those insurers to raise premiums even more in order to meet their expenses. Once that happens, however, even more healthy people are likely to drop out of the market. Which will cause premiums to go up again. Which will cause more healthy people to drop their insurance. Which will cause premiums to go up. Such a death spiral could potentially collapse the individual insurance market in many states.
Even in a more optimistic scenario, however, the picture is still rather grim. HHS data shows that the average Obamacare consumer who receives a tax credit would face an immediate 322 percent premium hike if they lost that credit. The shocks to the insurance market, according to a RAND study, would then raise premiums by an additional 47 percent.
The thrust of the actuaries letter extends beyond dark predictions of what could happen if the Supreme Court sides with the plaintiffs in King to ask Secretary Burwell to essentially save many insurers from insolvency. Under existing HHS regulations, “for 2015, premiums are already in place and ACA regulations prohibit mid-year premium changes.” Similarly, health insurers “are required to file their 2016 plan year premiums by May 15,” more than a month before the justices are likely to hand down their decision in King. Thus, under current rules, the insurance industry will not be able to protect itself from an adverse decision from the Supreme Court. According to the letter, this problem raises “solvency concerns” because, in the event of a decision to defund Obamacare, existing “premiums likely would be insufficient to cover claims” by people with significant health expenses.
The May 15 deadline raised by the letter also presents another problem that could arise even if the Supreme Court ultimately decides not to take health care away from millions of Americans. Insurers may be reluctant to sell plans on Affordable Care Act exchanges — or they may sell those plans at elevated prices — because they are fearful of what could happen in King. Burwell, most likely, can mitigate this problem by following the actuaries’ recommendations to give insurance companies more flexibility in the event of an adverse decision from the justices. But King could still generate enough terror within the insurance industry to drive up premiums or keep insurers out of the market — even if the justices ultimately recognize that the law is not on the King plaintiffs’ side.