Editor’s Note: What happens if the U.S. Supreme Court invalidates the federal tax subsidies that allow over 4 million low- and middle-income people to buy health under the Affordable Care Act (ACA)? The Urban Institute estimates that the 37 states with federally run marketplaces would lose over $36 billion in federal subsidies. Dr. Toni Miles, director of gerontology at the University of Georgia, served on the Senate Finance Committee during the development of the ACA. She spoke with NAM health editor Viji Sundaram.
In the King v Burwell case before the U.S. Supreme Court, plaintiffs are arguing that granting subsidies in federal marketplaces is inconsistent with language in the Affordable Care Act that states that tax credits are to offset the cost of premiums for plans offered “through an exchange established by the state. ” If the plaintiffs win, which states will be most affected?
California and the 13 other states that run their own exchanges won’t be affected at all by the ruling. But the pace of enrollment is particularly strong in states that have federally run marketplaces, particularly in Florida, North Carolina, Texas and Georgia. This means that a huge number of people have a stake in the King v Burwell case that will be heard some time this month, with the decision coming down in June.
If the Supreme Court invalidates the federal tax subsidies, what impact will it have on insurance companies? Will they raise premiums?
If King prevails, the number of persons in the private markets would be fewer than anticipated. This smaller pool would result in higher than anticipated premiums. But keep in mind, there is a provision in the ACA protecting consumers from wide swings in premiums. The tendency to raise premiums is held back by the requirement that 80 percent of all premium dollars collected in a year are spent for health care. That’s why some consumers have received refunds due to lower rates of illness.
In a place like Georgia, where people will lose access to the federal subsidies, insurance companies will lose newly enrolled persons. Persons buying policies outside of the exchanges will be subject to the problems that were corrected by the ACA. This means that pre-existing conditions, older women, and young adults aged 19 to 26 years will once again experience difficulty buying health insurance.
Federally run health insurance exchanges, we are talking about states that did not expand the access of low-income people to Medicaid, the state-federal partnership providing insurance to people near or at the poverty level. What are the financial consequences faced by states that did not choose to expand Medicaid eligibility?
In states that did not expand Medicaid, many adults – about 4 million of them nationwide -- will fall into a so-called “coverage gap” because they have incomes above the Medicaid eligibility limits but below the lower limit for marketplace premium tax credits. Those adults are usually called “the working poor.”
There were five safety-net hospitals that closed in Georgia in 2014 that were helping those in the coverage gap. Are these closures in any way linked to the fact that the state did not expand Medicaid eligibility?
By not broadening the Medicaid program, states like Georgia are suffering in some obvious and some not-so-obvious ways. First, they have obviously lost the federal dollars that would have totally covered Medicaid for the first three years.
Not so obvious is the connection to hospital closures in states that did not expand Medicaid. For years, government subsidies helped safety-net hospitals defray the cost of care for the poor. These subsidies are critical for the survival of those hospitals. They were cut on the assumption that the hospitals would replace much of their lost income with payments for patients newly covered by Medicaid or private insurance purchased through the exchanges.
The government subsidies were repurposed to help those not eligible for Medicaid to purchase health insurance through the exchanges. Without that subsidy, hundreds of thousands of people will be locked out of the exchange. Even as it is, the cheapest private insurance on the exchanges, the bronze plan, covers just 60 percent of the cost, forcing low-income people who purchase it to pay huge out-of-pocket expenses.
So why would any state want King to win?
That’s a great question. Frankly, I can’t think of a legitimate reason why. Given that states would suffer such big losses following a plaintiff victory, it certainly looks like states should be interested in having Burwell win.