A future court ruling that Americans in 36 states can no longer get U.S. subsidies for Obamacare’s insurance plans would boost premiums by 76 percent, allowing many to flee the program and chasing away insurers.
It’s a worst-case scenario that could affect almost 5 million people who use subsidies now, and millions more who haven’t yet enrolled. Under the health law, anyone whose premiums exceed 8 percent of their income is exempt from the law’s mandate that all Americans be covered. That may leave only the sickest and most desperate on the rolls, raising coverage costs for insurers.
Two U.S. appeals courts issued opposing rulings yesterday on whether the subsidies are legal in states whose insurance exchanges are run by the federal government. While nothing will happen immediately, the dueling decisions open new questions about the law’s future.
Insurers “took significant risk” in joining the exchanges, said Ken Fasola, the chief executive officer of HealthMarkets Inc., an independent insurance broker network, in a telephone interview. “The longer it goes without a decision, the greater the degree of anxiety about who’s going to be ultimately responsible for those dollars.”
Consumers are also worried. Graylen Graham, 51, of Rex, Georgia, an Atlanta suburb, couldn’t afford health insurance when he suffered a heart attack while working as a part-time college instructor last year.
Since then, as his treatments continued, the subsidies helped him secure coverage. While he’s set to start working for an employer that provides insurance, there is no guarantee that will continue into the future, he said.
“If I lost my job and got sick again because I couldn’t afford my medication, I’d be a statistic,” Graham said in a telephone interview. “One of those people you hear about that they find dead somewhere.”
Residents in the 36 affected states would lose about $36 billion in subsidies, according to an analysis by Avalere Health, a Washington consulting group that also estimated consumers would see premium increases averaging about 76 percent. As healthy people dropped their plans, insurers would be stuck with sicker and costlier customers.
Insurance markets in those states “are going to go into a death spiral; people are not going to be able to purchase individual insurance,” Timothy Jost, a law professor at Washington & Lee University who tracks implementation of the health-care law, said in a phone interview. “Coverage would very rapidly become unaffordable for virtually everybody.”
The Obama administration said the subsidies will continue to flow while the decision is appealed. The subsidies for policies purchased through state-administered exchanges aren’t under challenge in the cases.
At issue is wording in the Patient Protection and Affordable Care Act known as Obamacare that may limit eligibility for subsidies to people using exchanges “established by the state.”
While the law encouraged every state to build an insurance exchange, only 14 complied. The other 36 are part of a federal exchange authorized under a different section of the law.
Despite the ambiguity in the wording, the Internal Revenue Service ruled in May 2012 that subsidies would be available in all states, regardless of which government runs their exchanges. A three-judge Washington-based appellate court overturned that decision while an appeals court panel in Virginia upheld it.
A final decision could take a year or more working its way to the U.S. Supreme Court.
The decisions involved a case filed by foes of the law who live in states with a federal exchange. They argued the subsidies made them liable for penalties for not carrying insurance, or for declining to provide it to employees.
An easy fix -- congressional action to clarify the intent of the law -- is unlikely as long as Republicans who oppose the Affordable Care Act control the House of Representatives.
The best solution should the courts rule against the subsidies would be for non-exchange states to quickly create their own, said Ron Pollack, the executive director of Families USA, an advocacy group in Washington that backs the health law.
“I think that would probably happen rather quickly,” he said by telephone. “If the subsidies were withdrawn, then many millions of people would rejoin the ranks of the uninsured.”
Robert Laszewski, an insurance industry consultant in Alexandria, Virginia, suggested a similar end-around in a blog post, saying that governors may be able to sidestep a ruling by simply contracting with the federal government to run their state exchanges.
Fasola, meanwhile, said he was urging agents and call-center workers for his insurance network to counsel customers that insurers are unlikely to demand they pay back subsidies already received.
The “ruling will take time to be fully resolved by the courts,” Alissa Fox, a senior vice president at the Blue Cross Blue Shield Association, whose 37 member companies have the most market share in the exchanges, said in a statement. “In the meantime, Blue Cross and Blue Shield companies are committed to ensure individuals and families have access to high-quality affordable health coverage.”
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