On Tuesday, two conservative judges essentially decided to defund Obamacare, ruling that the 36 states with federally-run insurance marketplaces can’t extend tax credits to help their residents purchase health care because of a technicality in the way the law is worded. Although it’s not the final word on the matter, the Halbig v. Burwell decision does represent a setback to the health reform law.
Now, the case will likely head to the full U.S. Court of Appeals for the District of Columbia Circuit, and could eventually make its way up to the Supreme Court. There are several reasons to be optimistic that Halbig won’t actually survive, particularly because Democrats have a 7–4 majority on the DC Circuit. But it’s important to remember that supporters of the case are pushing for a policy change that would have catastrophic results for Americans across the country. Here’s what will happen to the insurance industry if Halbig wins:
Almost 90 percent of Obamacare enrollees in states with federal marketplaces will lose their tax credits.
According to the Department of Health and Human Services, 87 percent of the Obamacare enrollees in the states that would be impacted by the Halbig decision are currently relying on federal subsidies to help them afford the cost of their plan. But that financial assistance would disappear if the case is approved. That number rises even higher in some states with higher rates of poverty; in Mississippi, for instance, 94 percent of the people who signed up for Obamacare could be affected.
Premiums in those states could increase by more than 75 percent.
A recent analysis by the consulting firm Avalere Health calculated that the cost of health care would increase by an average of 76 percent in the 36 states that would no longer be allowed to extend tax subsidies under Halbig. That will make insurance simply too unaffordable for many of the low-income Americans who were supposed to benefit from health reform. In some states, premiums could jump by nearly $400, according a recent analysis by Greg Sargent.
The average person with the cheapest plan on a federal marketplace would have to spend a quarter of their income on insurance.
Obamacare intends to limit how much money Americans have to spend on their insurance, and tax subsidies are precisely the mechanism that the law uses to accomplish that goal. But without those subsidies, the people in the 36 states affected by Halbig would return to an insurance industry that locks them out of affordable health care. According to MIT health economist Jon Gruber, the average person who buys a bronze plan — the cheapest insurance option — would be forced to devote 24 percent of their income to cover the premiums for that plan.
The number of uninsured Americans would increase by about 6.5 million.
Altogether, millions of Americans will see their premiums rise if federal marketplaces can’t provide tax subsidies anymore. Because so many of them won’t be able to foot a higher monthly bill for their Obamacare plans, they’ll likely be forced to drop their new health insurance. According to Gruber’s projections, eliminating financial assistance in the 36 states with federal marketplaces would swell the ranks of the uninsured by an estimated 6.5 million people.
Obamacare premiums as a whole would be sent into a “death spiral.”
If so many people drop their health insurance because it’s suddenly become unaffordable, Obamacare’s marketplaces likely will be left with an unbalanced pool of enrollees that are disproportionately older and sicker. That will lead insurers to raise their premiums even further to make up for their lost revenue and cover those costly beneficiaries. According to a brief filed in opposition to Halbig by several economists, that would result in a “death spiral” that would ultimately put affordable insurance out of reach for more than 99 percent of the people who are currently eligible for subsidies in the federal exchanges.