The Supreme Court today will hear arguments in King v. Burwell, the highly anticipated case challenging the legality of subsidies available for individuals purchasing health insurance on the federal exchange under the Affordable Care Act.

With the health care reform law’s individual and employer mandates hanging in the balance, as well as the affordability of health insurance premiums, a ruling by the high court to invalidate the tax credits could have a lasting effect on many industry stakeholders:

The Insurance Impact

If the Supreme Court rules in favor of the plaintiffs, invalidating tax credits for individuals purchasing insurance on the federal exchange, John Barkett, director of health policy affairs for Towers Watson exchange solutions,  says the individual insurance market “would spiral out of control in states that have chosen not to establish their own exchange.”

Without a fix from Congress or the White House, such a decision would prompt “a large exodus from the marketplace,” adds Marcy Buckner, senior director of state affairs for the National Association of Health Underwriters. Health insurance plans sold on the federal exchange “would become too expensive for many consumers,” she said last week at the NAHU Capitol Conference in Washington, D.C.

That’s because of the phenomenon of “adverse selection,” according to an amicus brief filed by America’s Health Insurance Plans, a trade association representing the health insurance industry. Though a Supreme Court ruling in favor of the plaintiff would eliminate subsidies in those states, insurers would still be required to accept all applicants for coverage under the guaranteed issue clause of the law, which would remain in effect. Without subsidies to defer the cost of insurance for high-risk individuals, insurers would be forced to raise rates on all customers to provide even remotely affordable coverage to those most at risk. This creates a “death spiral” of pricing as more healthy individuals choose to waive coverage and instead pay the penalty under the ACA, and premiums on the remaining customers — most of which would be higher-risk -- skyrocket. The number of uninsured Americans would increase by 8.2 million, according to the Urban Institute, and premiums would skyrocket, increasing between 122% and 774%, depending on the state, according to Washington-based consultancy Avalere Health.

“When healthy individuals opt out of the individual insurance market, those who are left are, on average, less healthy (and therefore prone to higher-than-average medical expenses). A sicker pool of consumers results in higher premiums, which causes an additional relatively healthy subset of participants to drop out, which in turn results in a further increase in premiums,” AHIP writes.

A ruling for the plaintiff not only means short-term destabilization of the health insurance market, but it doesn’t mean we go back to the way things were, says Joseph Smith, who is the former CIO of Arkansas Blue Cross and Blue Shield and now is a consultant on technology matters for health insurers and other health companies. Complicating matters is how insurers have already invested in complying with the law as written, and without a clear picture of what the market will look like if subsidies vanish, insurers can’t be sure how to adjust.

“The government has been frivolous in how they have constantly churned the regulations and terms under the ACA, and it’s already been a very expensive compliance initiative” for insurers, Smith says. “And if the subsidy piece comes out of this, it’s like pulling a leg out from under a stool.”

Impacts on Employers

“For employers who have employees, whether part time or full time or early retirees on the exchanges, it’s obviously a concern,” says Steve Wojcik, vice president of public policy at the National Business Group on Health.

For most employers, he says, the decision won’t have much of an impact, but employers that have employees only in the affected states could decide to make some changes to health care coverage or drop it all together, as the employer mandate would be inapplicable to them.

“If subsidies are no longer permitted, penalties [against employers] cannot be assessed. If a person can’t get coverage from the health care exchange and receive a government subsidy, then the government is not allowed to tax the employer,” says Steve Friedman, co-chair of the employee benefits practice at law firm Littler Mendelson. “The government can only tax the employer [enforce penalties] if the employee who is not offered affordable coverage can go to the exchange and get a tax subsidy.”

Impacts on Employees

Employees who have access to employer-based coverage may not see much of a change, if any, says Kelly Fristoe, president and CEO of employee benefit brokerage Financial Partners in Wichita Falls, Texas. However, he adds, as the employer mandate penalty is triggered by an employee receiving a tax credit, it could be that employees who work for an applicable large employer who would rather not spend money on offering a health plan could find themselves in a position of losing that employer-based coverage. 

“Those large employers who considered purchasing coverage for their employees to avoid the employer penalty triggered by the tax credits may now terminate that employer-based coverage due to the fact that a tax credit will now not trigger such a penalty. That employer can now go back to not offering insurance to their employees,” he adds.

The importance of health exchange subsidies for employees purchasing on the exchange is highlighted by data from a new HHS report on the federal exchange that found individuals who enrolled in the public exchange during the 2015 open enrollment period — and were eligible for subsidies — paid an average of $105 monthly. Without subsidies, their average premium would have been $375. The great majority (87%) of the nearly 7.5 million people who enrolled for coverage in the federal exchange through Jan. 30 received a subsidy.

Impacts on Benefit Advisers

While many industry experts feel any decision to invalidate the subsidies would be met with swift action to re-instate them, they agree benefit advisers should be reassuring employer clients that they are prepared to work with them to respond to whatever changes would be required.

“We are telling our clients that we are prepared for when this happens, and we will help you make any change,” says Rick Lindquist, president of Zane Benefits.

Benefit advisers who have helped a large number of people enroll in marketplace coverage “could be adversely affected if the decision is made to stop the tax credits immediately,” says Financial Partners’ Fristoe. “If that were to happen it’s expected that the majority of those consumers would not be able to afford the full unsubsidized premium and drop their coverage.”

As those policies terminate, he says, “the adviser is now in a negative economic position of not being compensated for the work that was done on behalf of the client.”

The Supreme Court could, however, make a decision to invalidate the tax credits but set an effective date of Jan. 16, 2016 to allow for insured individuals to continue to receive the tax credits for the duration of 2015. 

“If this is the way they make their decision it would not be as disruptive to the market and the agents would probably see no negative economic impact to them until 2016 when those insureds will not be able to afford coverage,” says Fristoe.

The court could also invalidate the subsidies “but throw it back to the Department of Health and Human Services and CMS to rewrite the rules on ending the subsidies to federal exchange states,” he says. “Rule writing can take a very long time to reach ‘final rule’ status so it could be that in a case such as this that tax credits will continue until HHS/CMS get the final rules written.”

“It’s important that employers understand that what happens [today] may give an indication of what the court is thinking, but the decision is not likely to come until the end of June," says Towers Watson's Barkett. And, whatever the court decides, the Congress and White House still have options to rectify the situation.”

NBGH’s Wojcik also feels a possible fix would follow any ruling invalidating the subsidies, and suggests advisers should continue to monitor the case, but “not make a big deal about it.”

“We’re basically telling our clients, small and large, to keep an eye out and see what the court says. But right now, in advance of the decision, we’re not telling anyone to change course,” says Littler Mendelson’s Friedman.

Impacts on Healthcare Providers

Hospital and health care groups have supported the government’s contention that the ACA was intended to provide premium tax credits for individuals.

A friend-of-the-court brief filed by some of the nation’s largest hospital organizations stated that any decision that rolled back the subsidies “would be a disaster for millions of lower- and middle-income Americans.” The brief was filed by the American Hospital Association, Federation of American Hospitals, Association of American Medical Colleges and America’s Essential Hospitals.

“The ACA’s subsidies have made it possible for more than 9 million men, women and children to have health care coverage — some for the first time in years,” the brief said. “If Petitioners’ interpretation is accepted, however, that salutary development will be reversed. The ranks of the uninsured will swell again, with all that portends in the way of untreated illness and overwhelming debt. That is not what Congress intended.”

A decision by the court to rescind subsidies will likely result in large increases in health insurance premiums to maintain the programs, predicted America’s Health Insurance Plans. Its friend-of-the-court brief suggested that “the lack of tax credits … would alter the fundamental dynamics of those markets in a manner that would make insurance significantly less affordable even to those who would not rely on the subsidies.”

Barkett says barring any sort of fix from Congress or the White House, the future of health care could look drastically different from one state to the next.

“You could have drastically different markets within neighboring states. For example, he says, “Minnesota could have an uninsured rate of 5%, while Wisconsin’s is 15%. That could also have major health outcome implications, state budget implications, etc.,” he says.

So what if it happens?

The Obama administration has said it does not have a plan in place should the subsides be ruled illegal. But Katherine Hempstead, director at the non-partisan Robert Wood Johnson Foundation, predicts there will be something to mitigate the impact should the court rule in favor of the plaintiff.

“Everybody is playing chicken. I can’t really imagine this is going to come to pass,” she says. “I do think the non-group market is too big to fail and I don’t think the worst-case scenario is going to be allowed to come to pass. There will be some kind of workaround.”

Republican House members on Tuesday unveiled a fix that would roll back the ACA mandates to buy insurance while also providing tax credits to help people afford coverage. 

Over the weekend, Senate Republicans introduced a different plan that also outlines a proposal for transitional assistance for people losing subsidies.

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