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Supreme Court Decision on Insurance Subsidies Could Trigger Price Spikes

Supporters and challengers clash over four words

Making health insurance available and affordable to millions of people who buy their own coverage was a key goal for backers of the Patient Protection and Affordable Care Act (PPACA). But if the Supreme Court strikes down the insurance subsidies of millions of Americans who rely on the federal insurance marketplace, it could leave many worse off than they were before the law took effect, according to a report from Kaiser Health News.

That’s because millions of consumers likely would drop their policies, which they would no longer be able to afford without subsidies.

Most insurers could not cancel plans without giving 1 to 3 months’ notice. But the companies remaining in the market would likely seek sharp increases in premiums for the following year, anticipating that the consumers most likely to hold onto their plans would be those needing medical care, Kaiser says.

At issue in King v. Burwell — slated to be argued before the Supreme Court on March 4 — is the basis of subsidies that go to millions of low- and moderate-income Americans in the approximately three dozen states that rely on the federal marketplace. More than 85% of the 8.6 million people who purchased plans in those states qualified for subsidies, administration officials said.

Challengers of the PPACA point to four words in the Act that say subsidies shall be distributed through marketplaces “established by the state.” They argue that that wording bars the government from subsidizing insurance purchased through a federally administered exchange.

Supporters of the Act, on the other hand, argue that Congress intended the subsidies to be available through both federally run and state-run markets, which they say is clear in reading the overall bill.

The court’s ruling would have no effect on the subsidies provided to residents through state-run markets, such as those in California, New York, and Washington.

The Obama administration has declined to discuss contingency plans, expressing confidence that it will prevail with the justices.

If the court strikes subsidies, experts say Congress could apply “fixes,” such as voting to allow the subsidies to continue through the rest of the year. But whether a Republican-controlled Congress that has pledged itself to the law’s repeal would agree to that is uncertain.

At the state level, officials could decide to establish state-run marketplaces, but they would have to move fast before the start of open enrollment for 2016, tentatively set to begin November 1. And lawmakers in many GOP-led states are likely to resist such steps, citing opposition to the Act.

Governors in at least five of the states — Louisiana, Mississippi, Nebraska, South Carolina, and Wisconsin — have announced that they would not create their own exchanges if the court invalidated subsidies. In another four states — Georgia, Missouri, Montana, and Tennessee — politics could make it very difficult to set up a state program.

Even if insurers wanted to drop coverage immediately in the event the high court struck the subsidies, most could not do so legally, Kaiser says. State laws require anywhere from 30 to 90 days’ notice for an insurer to exit a market. And if they withdraw, they have to pull all of their plans, not just those offered through the federal exchange.

Regulations keep insurers from coming back into the market for years, however, creating a disincentive to bail out.

Stuart Butler, a conservative scholar at the Brookings Institution, believes the court is likely to offer some temporary remedy, such as a grace period when the subsidies could continue to flow.

“The idea that there will be some cataclysm the day after is extremely unlikely,” Butler said. “We’ll see a number of states moving toward essentially setting up a state exchange. We could still see Texas and a few others saying no. But if two-thirds of states find a way to accommodate it, I don’t see that a critical mass for the collapse of the Affordable Care Act is there.”

Source: Kaiser Health News; February 26, 2015.

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