In the coming weeks the Supreme Court of the United States will rule on the lasted Affordable Care Act challenge King v. Burwell. The wording of the law is critical. The wording of the law says individuals whose incomes fall within a specified range are eligible for premium assistance tax credits to purchase insurance through exchanges established by a state. The key words are established by a State. That is what the court case is about. It does not say for purchases made through a Federal exchange.
In 2012, the Internal Revenue Service issued a rule that said not only were the credits available in state based exchanges but also in the 34 other states who did not set up their own exchanges.
The plaintiffs are arguing that subsidies in Federal exchanges are not legal. The Government is arguing that it was never meant to mean “a State” but “all States”. Regardless of what the intent was, the court will rule on if those Americans in 34 States who are receiving Advanced Premium Tax Credits (subsidies) will be able to keep them.
If the court rules in favor of the plaintiff, those receiving subsidies in the state base exchanges, would then, pending a Congressional Amendment lose their subsidies. It is believed that roughly 8 million people are receiving subsidies in states that are being run by the Federal Government.
Now to clarify, those who lose their subsidies do not lose their insurance. The insurance carrier would still provide the coverage they have selected except, the client would not pay the full price. This in many cases will be too expensive for many of the policy holders to keep, so you may see them “cancel themselves.”
One of the key elements of the law is the individual mandate, which is what requires everyone to purchase insurance or pay the fine ( or tax) which in 2016 is 2% of your Modified Adjusted Gross Income (MAGI). If your premium is more that 8% of your household income, you are exempt from having to purchase insurance and the tax. If the subsidies disappear, you will have many Americans whose premium is now greater than 8% of their household income. They can drop coverage without penalty. If there is no incentive to purchase insurance, you will see a lot opt out. Of course if there is no tax penalty it reduces revenue to the IRS.
Now we do not know how the Supreme Court will rule, we also do not know what Congress will do if the subsidies are deemed illegal. We do not know what the President of the United States will sign off on, but here are some ideas that have been floated around.
The states could try and rush to set up their own exchanges. You have witnessed the rollout of healthcare.gov and they had a few years to get it done. I cannot imagine they could roll it out even in six months. We have also seen failures of state based exchanges in California and Hawaii. I do not see many states taking on that burden.
Congress could amend the law to grant the subsidies for the rest of the year. Senator Ron Johnson (R) Wisconsin has a proposed a bill with 29 co-sponsors that would allow the Federal Subsidies to remain in effect until August of 2017.
Congress could repeal and replace the law. There are several options that have been proposed by the Republican Party. Congressman Tom Price (R) Georgia, has a bill HR 2300. It now calls for simple aged based tax credits, reduces the role of the IRS, it also gives a one-time $1000 tax credit for those who open a Health Savings Account. Senator Bill Cassidy (R) Louisiana has a plan also based on patient care. There is another republican plan Sponsored by Senators Orrin Hatch (R) Utah, Richard Burr (R) NC and Fred Upton ( R) Michigan. This plan called Choice Affordability, Responsibility and Empowerment or CARE repeals the individual mandate and has a transitional period where all with a pre-existing condition could get coverage. If you keep coverage in force you keep those protections.
There are several other options that have been proposed. We do not know how Congress will react to the outcome of the case.
Insurance carriers have had to put in their rates for next year already. We saw in New Mexico the largest insurer ask for a 51% increase in premium. In Tennessee, the largest insurer asked for 36% and in Oregon an average of 25%. There are some states where the insurance carriers are only asking for 10-12%, however the law was supposed to decrease premium. In the event, that nothing is done and the law stays with the exception of the subsidies, we will most likely see an increase in the uninsured population.