UPDATE: The Supreme Court has upheld ACA subsidies

With just three decision days left in this Supreme Court Term (today, Friday, and Monday), we’ll soon know the outcome of King v. Burwell.  If you’re like 70% of Americans you may have never even heard of this case, but it has major implications for health care in America.  Now is your time to study up – and if you are in the business of health care, it’s time to plan for the implications if the Court rules in favor of the plaintiff.

THE BOTTOM LINE: Subsidies to purchase health insurance on the federal exchange are at risk – with an impact to millions of Americans who may once again join the uninsured.

In a phenomenon referred to as the “death spiral” (which sounds like it is straight out of Star Wars), premiums may rise to an unaffordable level, causing the healthiest consumers (who balance out the risk of the sickest) to leave the marketplace, and ultimately resulting in even higher prices and less choice as insurers cease participation in the federal exchange.

Wait – Death Spiral?!? WHAT?

One of the goals of the Affordable Care Act (aka “Obamacare” and “ACA”) was to expand access to health insurance.  Two of the major provisions to increase insurance coverage include:

  • Subsidies averaging $2,890 per person that make coverage affordable to people with incomes ranging from one to four times the poverty level ($11,490 to $45,960 for a single person and $23,550 to $94,200 for a family of four) who purchase medical insurance through an exchange established by a state.
  • An individual mandate that requires people to purchase insurance coverage or pay a penalty (in 2015, the higher of either 2% of your household income or a $325/person fee with a maximum household penalty of $975)

Here’s the catchCredit: Kaiser Family Foundation, CNBC

ACA specifies the subsidies are available through STATE RUN exchanges.  And, there are 34 states (yes, 34!) that didn’t build their own exchanges and instead turned over the task to the federal government. 

Basis of the Case

While the Internal Revenue Service sought to patch this gap by authorizing subsidies to the more than 7.5 million people in states with the federally-run exchange, King v. Burwell challenges whether that regulation is valid because ACA expressly provides subsidies to people who purchase coverage through STATE RUN exchanges.

Impact of a Ruling in Favor of King

Consumers

  • Millions of people who participate in the federally-run exchange would lose their subsidies and would no longer be able to afford insurance coverage
  • Likely would remove the individual mandate to purchase insurance coverage or pay a penalty
  • The aforementioned death spiral: Many “young and healthy” individuals would leave the marketplace, but the sickest would remain, creating more risk for insurers, who in turn would increase premiums on the exchange by estimates ranging from 35 percent to more than 400 percent…if they didn’t abandon the marketplace altogether
  • Many provisions of ACA will remain unchanged (guarantee of coverage regardless of pre-existing conditions, an expansion of Medicaid, rules allowing young people to remain on their parents’ insurance until age 26, and requirements to cover certain preventive care), but it would create years of uncertainty

Health Systems

  • Uncertainty and instability – ACA resulted in a “new world order” for health systems, but a major change to the law would cause even further upheaval
  • An increase in uninsured patients who no longer can afford to participate in the federally-run exchange, who would now be more likely to postpone necessary care and forgo preventive care
  • An increase in unpaid medical bills and financial aid requests
  • The need to communicate the implications of the new law to existing patients
  • A risk to the credit rating of not-for-profit hospitals
  • And more – I told you this was the 5 minute study guide!

Is this health care’s answer to the Y2K crisis or would a ruling in favor of King result in the “death spiral” predicted by some?  We’d love to hear your thoughts.