The King v. Burwell case now before the Supreme Court has attracted heated rhetoric from both opponents and supporters of the Affordable Care Act. But what would be the actual dollar impact if the Justices rule against the administration?
First Capitol Consulting Inc. looked at the impact – on consumers, employers and the insurance marketplace – of a pro-King ruling that disallowed subsidies in the 37 states without an independently operated exchange.
A total of 13.4 million people are expected to purchase subsidized insurance in these states this year. These policyholders – and their insurance companies – will receive nearly $42.5 billion in subsidies in 2015.
At issue in the case is the interpretation of the clause in the ACA that authorizes subsidies to consumers who purchase insurance coverage through an exchange “established by the state.”
Most observers believe a ruling against the Obama administration would mean premium tax credits, or subsidies, could not go to consumers who buy insurance through the federal exchange rather than via a state-run exchange.
Currently 13 states and the District of Columbia operate their own marketplaces, meeting the literal meaning of the words in the ACA legislation.
Another 7 states have federal-state partnership exchanges, where the state provides information and some services, and 3 states have federally-supported state-based marketplaces. There is no way to know in advance if the court will opine as to whether these 10 exchanges would qualify as having been “established” by the states.
An estimated total of 13.4 million people are expected to purchase subsidized insurance in the 37 federal exchange states this year, according to an analysis prepared by First Capitol Consulting.
The average monthly subsidy is $264, equal to 75% of the total monthly premium. Both premiums and subsidy vary by state. Subsidies range from $243 per month in Utah to $536 in Wyoming. The monthly premium paid by a policyholder after the subsidy ranges from $23 in Missouri to $148 in New Mexico.
The aggregate monthly premium outlay for the 13.4 million Americans who are expected to enroll would be over $4.6 billion. After the ACA subsidies, the out-of-pocket cost to these insureds would be $1.1 billion. The subsidies of more than $3.5 billion per month would total nearly $42.5 billion annually.
Between the premiums and subsidies, insurance companies will receive nearly $56 billion if the enrollment projections are accurate.
“It’s unknown how many of the millions of consumers who are expected to buy subsidized insurance would be able to afford coverage without the ACA subsidy, but we believe the large majority would not,” said Robert S. Sheen, president of First Capitol Consulting and Editor in Chief of The ACA Times. Los Angeles-based First Capitol Consulting advises companies on implementing employer mandate solutions under the ACA.
“What is clear is that many millions of Americans with individual policies would revert to being uninsured, which would cause profoundly negative impacts on public health, the healthcare delivery system and the insurance industry,” according to Sheen.
Uninsured individuals would have little access to routine preventive medical care, Sheen noted. Many with advanced health problems would seek care at busy hospital emergency rooms, which must by law provide care even if the patient is unable to pay.
“Hospitals would be treating more people with acute and chronic conditions, and would be receiving no reimbursement for that treatment,” he said.
Another unknown is what effect a “King” ruling striking down subsidies in these states would have in regard to the mandate on employers with 50 or more workers to offer health insurance coverage to these workers.
“We could see an outcome which says workers in these state cannot receive subsidies, but does not free employers from the obligation to provide coverage for their employees,” said Sheen. “The result would be an unexpected multi-billion-dollar financial burden for these companies.”
Health insurance companies would also face a potentially devastating financial impact, Sheen noted.
If most subsidized policyholders cancel their coverage, the insurance industry would forego a large part of the anticipated $56 billion in revenue.
Many of those likely to drop their coverage upon losing subsidies would be younger, healthier people – the customers insurers want.
Those who have serious medical conditions would have a strong incentive to maintain their insurance policies even without subsidies, and the ACA requires insurers to cover them, Sheen noted.
“Insurance companies would have lots of very sick people as their customers, and would lose the millions of healthy individuals who previously had been brought in by subsidized policies. They’d have much less premium income to cover the very high costs of caring for a relatively small group of people with serious medical conditions,” he said. “The financial stability of the health insurance industry would be jeopardized,” Sheen stated.