What Happened?
As I write this it has been forty-eight hours since the Supreme
Court announced they would rule on individual ACA subsidies being available on
the Federal Marketplace (healthcare.gov). Below I try and describe what
happened, the background of the case, the impact of a possible decision
against, and potential workarounds. In the past two days, many smart people
have tackled this topic. Standing on the shoulders of giants I try and pull the
pieces together for you.
Some have tied the timing of the decision to the election
results. Remember technically SCOTUS is not political in nature so election
results should have no impact on the Court’s ruling. That said with so many
states having administrations that oppose the ACA, the election results could
impact potential fixes to a ruling against subsidies, more on that below.
Two notes about some of the terminology used here. First, “Marketplace”
is the current term for what was called as “Exchange” in the text of the law,
they mean the same thing. Second, the case specifically accepted by the Supreme
Court on Friday was King v Burwell but you may remember it under a different
name, Halbig v Burwell – that is the case that appeared before the DC Circuit. The
issues in both cases are the same.
On Friday afternoon, shortly after the court’s weekly conference,
the announcement was made that the court would accept the case. The results of
the conference are usually announced on Mondays, but it is not unprecedented
that the announcement would come Friday afternoon. Why it happened in this case
is still anybody’s guess.
Often (but not always) the Supreme Court would take a case because
there are conflicting judgments among lower courts. As of now, there are no
conflicts with the subsidy cases. So why did they take the case now?
For one possible disturbing answer, I turn to Nicholas
Bagley: “No, what’s troubling is that four justices apparently think—or at
least are inclined to think—that King was wrongly decided. As I’ve said before,
there’s no other reason to take King. The challengers urged the Court to
intervene now in order to resolve “uncertainty” about the availability of federal
tax credits. In the absence of a split, however, the only source of uncertainty
is how the Supreme Court might eventually rule. After all, if it was clear that
the Court would affirm in King, there would have been no need to intervene now.
The Court could have stood pat, confident that it could correct any errant
decisions that might someday arise.” (The
Supreme Court will hear King. That’s bad news for the ACA.)
So what was once considered by many to be a laughable
challenge to the law, now may very well have at least four justices supporting
the reasoning.
While not yet scheduled, it seems likely that oral arguments
will be heard by the court the first week in March. A ruling would then be expected
near the end of the current term, in late June or early July. The DC Circuit
has an “en banc” review coming on Halbig v Burwell. Given the acceptance of the
case by SCOTUS, it is unclear if DC Circuit review will continue (oral
arguments are currently scheduled for December 17) (Court
to rule on health care subsidies).
Before we dive in, remember that with open enrollment
starting in a few days nothing has changed. Subsidies will be available and
even if the subsidies stop, no one will need to pay back what they’ve received
(Implementing
Health Reform: Supreme Court Will Review Tax Credits In Federal Exchanges).
That said, it will no doubt confuse the issue just as efforts are beginning to
sign additional people up for the coverage.
The Background
The argument is that due to the way the law was written,
subsidies (or technically, APTCs – advanced premium tax credits) are only
available on State-based Marketplaces, not on the Federal Marketplace
(healthcare.gov).
Many find the legal argument against subsidies on the Federal
Marketplace ridiculous: “King v. Burwell is not so much a radical legal
doctrine as it is a Monty Python-esque exercise in extreme tendentiousness.“ (Supreme
Court to Hear Newest, Craziest Legal Challenge to Obamacare).
But even though many continue to dismiss the legal
arguments, as we saw above, it is likely that four justices are drinking the
Kook-Aid and there is real concern that the case could be successful.
For more details on the arguments and further background,
here is an excellent overall review of the case (along with a two- minute video
explanation): Obamacare
is headed back to the Supreme Court. And here is a Q&A on the case from
the NY Times: Q
and A: A Case of Economics and Politics.
The Impact
According to recent estimates, by 2016, 36 billion dollars in
subsidies going to 7 million people would be receiving subsidies through the Federal
Marketplace (Working-class
Americans could lose $36 billion if the latest Obamacare challenge prevails).
Most of them would probably not be able to afford their insurance
without the subsidies. Here’s one story of someone whose life was saved by the ACA:
“After my year-long recovery is complete, I’m hoping to go back to work. I’ve
had three careers — in higher education, in biomedical engineering sales and as
a small-business owner. Because of my insurance, I’m able to contemplate my
future. And I’m really frightened that the Supreme Court might cut the subsidy
for me and so many others. For me, the subsidy is the difference between life
and death.” (Without
Obamacare, I would have died. I’m scared the Supreme Court is going to gut the
part that saved me.)
Taking a step back. Here is a list of some of the implications
in those states where subsidies were not available.
The employer mandate would be nullified: This is because both
penalties employers can be liable for only kick in when an employee gets a subsidy
on Marketplace.
The individual mandate would apply to fewer people: Many
more would now qualify for a hardship exemption due to the size of the unsubsidized
premiums relative to their income.
A likely death spiral in the individual market: This would
happen because a ruling against the subsidies would not remove the guaranteed
issue provision of the law. With no subsidies, mostly people who really need
the coverage would purchase insurance, meaning the costs of a much sicker
population spread over much fewer insured lived. This
would cause rates to go up,further forcing all but the most in need of coverage
out of the market (hence the spiral).
Losses for the health care industry: Insurers would lose business.
Hospitals would see an increase in the number of uninsured and thus an increase
in their rate of uncompensated care.
Friday already saw some immediate impact of the last point as
Health
insurers drop as Obamacare heads back to court “The S&P 500 healthcare
sector fell more than 1%, while the main benchmark was off only a few points.” Meanwhile
the major insurers fared worse: “Humana Inc. HUM, fell more than 6%, after
profits missed Wall Street estimates due to increased expenses. WellPoint,
Inc., WLP, -2.86% Aetna Inc., AET, -2.85% and UnitedHealth Group Inc. UNH,
-2.70% were all down nearly 3%.”
For more detail on the impact: The
Potential Side Effects of Halbig and The
Supreme Court Decides to Hear King v. Burwell: What Are the Implications?
Possible fixes
Of course the easiest fix for the issue would be for
Congress to pass an amendment to the ACA clarifying that subsidies should be
available on both state based marketplaces and the federal marketplace. While
you could envision scenarios where that was part of a larger deal re changes to
the ACA, it is not very likely.
Alternatively, it should be possible for a state to form
their own marketplace and then contract with healthcare.gov for all the
services: “A state could, for example, establish an exchange and appoint a
state-incorporated entity to oversee and manage it. That state-incorporated
entity could then contract with Healthcare.gov to operate the exchange. On the
ground, nothing would change. But tax credits would be available where they
weren’t before.” Working
around Halbig (7/14)
The issue here is that it would require state action. Many
of the states that currently have healthcare.gov do so because their
administrations did not support the law. They did not set up their own marketplaces,
and many of them did not expand Medicaid. So it’s likely that many would not
want to participate in this “fix”.
That said, this situation is different in two ways. First,
as Avik Roy notes, unlike Medicaid expansion no state dollars are required (after
the first few years, states pay 10% of the expansion costs). Would that make a
difference? (Avik Roy https://www.youtube.com/watch?v=VbXoaqNWiGk#t=317)
Second the population who receive the subsidies is different
than the one that would benefit from expansion: “The exchanges, on the other
hand, reach well up into the middle class. Many of their customers are
middle-income professionals who can’t afford insurance because they or a family
member has a preexisting condition. Taking away their insurance would trigger a
big ruckus. Conservative activists would be willing to endure the political
damage, but the calculation for Republican elected officials might not be so
clear-cut.” (Supreme
Court to Hear Newest, Craziest Legal Challenge to Obamacare).
Are these factors enough to make a difference? I have no idea.
Topping the list of things I have no idea about is how
SCOTUS will rule on this case. Previously, I did not give this case much
credence. I was encouraged by judge after judge ruling that the subsidies on
healthcare.gov were OK. But logic and reason don’t always hold sway. I am
concerned that the court took the case under these circumstances (no
disagreement among lower courts) and that theory aside, the court has shown
itself to be partisan in its rulings.
While those arguing against subsidies say they are doing so
to uphold their principals, to me it is heartlessly playing politics with
people’s health. So once again we find ourselves in the position of lives being
at stake as we wait to hear the court’s ruling.
Stay tuned.
