GOVERNMENT

Despite the King v. Burwell Distraction, Healthcare’s Leaders and Innovators Move Forward

MAR 10

The Supreme Court made headlines last week as it heard oral arguments in King v. Burwell, the second marquee legal challenge to the Affordable Care Act.  The lawsuit centers on the legality of providing subsidies to the federally-run exchange as opposed to only state-run exchanges.  The plaintiffs argue that the law, as it is written, only explicitly allows federal subsidies for exchanges “established by a State”.

The ruling has the potential to jeopardize insurance coverage for the ~7.7 million individuals who purchased plans through healthcare.gov in the 34 states that did not set up a state-based insurance exchange.  The worst case scenario for the law as it stands today would effectively wipe out the individual mandate and undermine the core of the ACA.  This means the cost of insurance for those ~7.7 million individuals would spike as subsidies (which offset ~75% of the total cost of premiums) are eliminated.  The healthiest individuals would likely opt-out and pay the mandated fine, whereas the sickest individuals would keep their coverage.  The result would be gross adverse selection and a highly acute pool of insured individuals, which would dramatically increase premiums, creating a vicious cycle.

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Early speculation indicates that the justices are split along party lines with Anthony Kennedy appearing to be the swing vote.  The justices may find middle ground in a way similar to how they ruled on the expansion of Medicaid in National Federation of Independent Business v. Sebelius in 2012, where the court stated that Congress was not able to coerce states into accepting the expansion of Medicaid by threatening to cut Medicaid funding if they did not.  By using a similar argument here, the court may rule that federal subsidies must be extended both to states with their own exchanges as well as those who use healthcare.gov.  Even if the court does rule in favor of the plaintiffs, it’s hard to imagine that even the most conservative states would be willing to give up the billions of dollars in federal subsidies that have benefited their residents who are most in need of healthcare purchased through the individual exchanges.  Many states who use the federal exchanges are already exploring a variety of options for how they can keep the federal subsidies should a conservative ruling prevail.  TripleTree has been following the exchange debate dating back to our research report on the topic in 2011.  Creating state-based public exchanges is not easy and the path has been and will continue to be fraught with political and technological hurdles, but should creating more be necessary, the collective experience from the initial rollout of the exchanges should make a second rollout wave of state-based exchanges run much smoother.

Unlike the initial period after the ACA’s implementation, the marketplace has essentially settled into accepting the ACA and is no longer pursing a ‘wait and see’ strategy.  While the marketplace is undoubtedly affected by legislative and judicial partisan wrangling, it is also clearly rejecting legislative and judicial paralysis.  Adjustments will be made pending the upcoming ruling, but the marketplace wants to move forward and make big strategic decisions.  Those organizations that are nimble and proactive are most likely to succeed, whereas those who are reactionary and operate with inertia will struggle.

With the SCOTUS ruling expected in late June, we’ll continue to monitor innovations in healthcare and report on any related news; until then let us know what you think.

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Justin Fengler