The Supreme Court is close to publishing its ruling on King v. Burwell, an issue that may decide that insurance subsidies are no longer available for those individuals purchasing their healthcare on the federal government’s healthcare.gov insurance exchange. Thirty-four states have failed to establish their own state-based insurance exchange and instead rely partly or fully on healthcare.gov (see the Figure below). Should the Court rule in favor of the plaintiff, subsidies to purchase insurance will only be available in state-run exchanges.
Approximately 85% of individuals who purchase insurance through healthcare.gov receive a subsidy. If this price support is eliminated, millions may go without insurance and Republicans would likely get blamed, a bad dynamic moving into an election cycle.
A large number of Senate’s Republicans have indicated their support of new legislation to temporarily continue Obamacare insurance subsidies in all public exchanges through 2017 in the event that the King v. Burwell verdict deems that the original ACA legislation did not allow for these subsidies in non-state run exchanges.
Is there suddenly a change of tune from Washington? Are cats and dogs living in harmony? Not in our lifetime. It is no coincidence that elections are coming up and extending subsidies as is currently being contemplated gives these politicians enough time to get through the election cycle by passing the buck. Many co-sponsors of this bill are up for reelection in the Senate and don’t want to be the ones to end insurance subsidies for over six million individuals that have received insurance through the Federal exchange.
The outcome of King v. Burwell is expected to decide if the intent of the ACA was to provide insurance purchasing subsidies to all eligible individuals who purchase a qualified insurance plan in any public insurance exchange or limit that subsidy to individuals who purchase insurance in a state-created insurance exchange.
Should the Supreme Court ruling limit subsidies to only the 14 state exchanges, millions of Americans may see their tax credits and likely their health insurance coverage disappear. Clawbacks are even possible. Such a ruling without any legislative fixes will essentially destroy healthcare reform’s goal of insuring the uninsured. It would also throw the individual insurance market into total chaos due to rapidly changing risk pools.
For its part, the Obama administration insists that it is entirely confident in the ACA legislation as written, and does not believe the Court will rule against the subsidies in the federal exchange. Therefore, the administration claims that it does not have a backup plan.
If this Republican legislation, which is only now taking shape, comes to fruition, it could help stabilize an insurance market that might be thrown into disarray depending on the Supreme Court ruling. This is assuming that the legislation does not contain other destabilizing provisions such as ending the individual mandate. As nothing in Washington tends to come easily, expect a lot of bickering coming up tied to the King v. Burwell decision, especially as we are about to enter election season in full force. Beyond Burwell, the next major shake-up will come in the 2017 rates, when the reinsurance and risk corridors (two of the “3Rs”) are set to expire, likely causing insurance rates to skyrocket…but that is a blog for another day. In the meantime, let us know what you think.