Once again, the fate of the Affordable Care Act (ACA) rests with the United States Supreme Court. Though the constitutionality of the ACA isn’t being challenged in King v. Burwell, the stakes may be just as high. This case involves the interpretation and applicability of the ACA’s individual health insurance subsidies (tax credits and cost-sharing reductions), and the outcome will likely depend on how the Court interprets four simple words.
The ACA created new marketplaces (Exchanges) where individuals can purchase health insurance. Only 16 states and the District of Columbia elected to establish their own state-based marketplaces. The federal government set up federally facilitated marketplaces in the remaining 34 states. This is important because the ACA provides that subsidies are available to individuals covered by a health plan enrolled in “through an Exchange established by the State.”
According to the King plaintiffs, this provision of the ACA clearly says (and means) that individuals purchasing health insurance in one of the 34 states with federally facilitated marketplaces are not entitled to subsidies. The Internal Revenue Service, on the other hand, has a broader interpretation of this provision. According to IRS regulations, subsidies are available to anyone who is enrolled in a health plan through an Exchange, regardless of whether it is state-based or federally facilitated.
The question before the Supreme Court is, simply stated, whether the IRS has the authority to extend ACA subsidies to health coverage purchased through federally facilitated marketplaces. Those who think this is an easy question should know that two federal appellate courts, the Fourth Circuit and the D.C. Circuit, had different answers.
What would happen if the Court rules against the IRS and holds that subsidies are not available to individuals in those 34 states with federally facilitated marketplace? Though difficult to predict, some believe such a result could prove catastrophic for the ACA.
According to a study by the RAND Corporation, individual health insurance enrollment in the 34 states with federally facilitated marketplaces would decline by 9.6 million to 4.1 million, a 70% decrease. The study also found that decreased enrollment would increase premiums. The average premium for a 40-year-old nonsmoker purchasing a silver plan in these states would go up $1,610, a 47% increase.
If the Court strikes down the IRS regulations, the Urban Institute estimates that the number of uninsured in 34 states would increase by 8.2 million people (a 44% increase relative to the number uninsured under the ACA as currently implemented). It would also eliminate $28.8 billion in tax credits and cost-sharing reductions in 2016 ($340 billion over 10 years) for 9.3 million people.
According to the Kaiser Family Foundation, disallowing subsidies in states with federally facilitated marketplaces may destabilize the individual insurance market in every state. It could also impact the ACA’s employer mandate applicable to large employers, since the penalty is triggered when an employee receives a subsidy.
At this point no one knows if or how King will affect health care reform. Could it undermine the ACA? Will it send shockwaves through the health insurance industry nationwide? We’ll just have to wait and see.
At Setnor Byer Insurance & Risk, we are committed to guiding you through the ever-changing health care landscape. Check back with us periodically for informational updates about the Affordable Care Act. In the meantime, if you have specific questions, contact us.
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