In the last two blog posts in our special series on King v. Burwell, we examined the legal grounds of the case, as well as current congressional action to preserve subsidies should SCOTUS (Supreme Court of the United States) rule for King. As a quick reminder, Congress is still without a single contingency plan to preserve subsidies should SCOTUS invalidate subsidies for individuals who purchased health insurance through federally-facilitated marketplaces (FFMs). As uncertainty looms, health centers must consider the potential implications a ruling for King may have on their patient population and services. This post is the third in a series of posts that will examine the case, its implications for health centers and the health care system, and what contingency plans (or lack thereof) policymakers have been discussing should the court invalidate the subsidies.
SCOTUS is expected to release their opinion in King v. Burwell later this week or early next week at the latest, making it imperative for health centers to understand the potential implications a ruling for King may produce. If SCOTUS rules in favor of the challengers in King v. Burwell, health centers in FFM states can expect swift and sweeping changes to the insurance marketplaces both in terms of premiums and participation. States will be faced with the decision to adopt state-established marketplaces to preserve subsidies for previously eligible individuals or forgo subsidies entirely, pending Congressional or individual state action (See last week’s blog). Without legislative action, millions of individuals would be left without affordable insurance as soon as a month after the SCOTUS ruling.
If SCOTUS rules for King, what are the potential implications for health centers?
- Increase in uninsured patient population.
A ruling in favor of the plaintiff would end subsidies for the approximately 6.4 million individuals who purchased health insurance through their state’s Federally-facilitated marketplace (FFM). Even if states are able to establish their own marketplaces, health centers would likely see an initial jump in their state’s uninsured populations. As health centers often serve as the only source of affordable medical care for low-income or uninsured individuals, a ruling for King would produce an increase in health center patient populations. Given that health centers already operate on slim margins, the decrease in the population of patients with insurance could lead to financial instability, especially for health centers relying heavily on revenue from patients insured through marketplace subsidies.
- Adverse selection leading to lower participation and higher costs
Under the ACA, individuals whose annual insurance premium exceeds 8% of their household adjusted gross income are exempt from the tax associated with the individual mandate. With a cut in subsidies to the 34 states currently operating with FFMs, more individuals would be able to opt out of insurance coverage without the tax disincentive. This large dip in marketplace participation would quickly lead to adverse selection in the insurance marketplace. In other words, otherwise healthy individuals, who would now exempt from the individual mandate taxes, would simply opt out of coverage.
Unfortunately, the ACA marketplaces are dependent on the individual mandate’s ability to oppose adverse selection in the insurance market by incentivizing healthy individuals—who may otherwise be inclined to forego insurance coverage—to participate in the marketplace. Adverse selection creates an insurance pool composed mostly of individuals with high medical use and therefore costs. If subsidies are deemed illegal in FFMs, insurers will need to significantly raise premiums to offset the costs associated with the changes to insurance marketplace, furthering discouraging healthy individuals from joining the insurance marketplace. This is sometimes referred to as an insurance “death spiral” since it has the potential to be self-reinforcing.
- Decrease in insurer participation in federal marketplaces
As low-cost individuals—who, if subsidies are invalidated, would no longer be subjected to the individual mandate—waive health insurance in the federal marketplaces, insurance companies lose incentive to remain in the federal exchanges. Without low-risk individuals paying into the marketplaces, insurers are forced to produce higher payouts, reducing the financial benefits they once received from a health-balanced marketplace under the individual mandate. This makes it less likely health centers will be able to help their patients find a plan that is affordable and high-quality.
- Increase in premiums for individuals in the insurance marketplace
Although premiums are expected to rise regardless of the King v. Burwell decision, a report by the Kaiser Family Foundation predicts some states may be hit harder than others should the SCOTUS rule in favor of King. Across the US, premiums are predicted to raise by an average of 287% in FFM states if subsidies are cut in FFMs, with estimated increases soaring as high as 650% in Mississippi. To find out your state’s predicted premium increase, check out this recent Kaiser Family Foundation report.
When can we expect a decision? How can we follow along as the news breaks?
To date, SCOTUS has identified this Thursday, Friday, and next Monday as potential dates to release the King v. Burwell opinion. With many big cases still down the pipeline, it is likely the Court may add an additional date next week—most likely next Tuesday. The official dates will be posted to the SCOTUS website. To follow along as the decision breaks, tune in to SCOTUS Blog’s live stream each decision day at 10 am EST.