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No Signs That State Is Ready for Ruling That Could End Federal Insurance Subsidies

Individual insurance market could collapse if newly insured lose ACA tax credits

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An estimated 172,000 New Jersey residents could lose the subsidies that make health insurance affordable to them, but there haven’t been any signs that the state government will take steps to help them keep their coverage.

Legislators and others familiar with New Jersey health policy have seen no outward signs that state officials are preparing for the possibility that the U.S. Supreme Court will invalidate the tax credits included in the Affordable Care Act to help low- to middle-income households buy individual and family insurance. Some analysts are concerned that this would put lives at stake if people lost their access to healthcare.

While legislators say the state should be able to act quickly to establish an exchange depending on the court’s ruling, it’s not clear whether Gov. Chris Christie will agree to such a move. In recent comments, he’s put responsibility for resolving the issue on the federal government. But with President Barack Obama and the Republican Congress far apart, a potential insurance crisis is brewing in the Garden State.

The court is expected to issue a decision before the end of the month in King v. Burwell. The case focuses on whether a section of the ACA limits the subsidies to residents of states that established their own exchanges.

President Obama and many members of Congress who passed the law say that the credits should be allowed if the entire law is considered, while opponents say the language of the tax-credit section clearly bars the federal marketplace from offering subsidies.

Sen. Joseph F. Vitale (D-Middlesex), the Senate Health, Human Services, and Senior Citizens Committee chairman, said the state could “easily” convert the federal marketplace to a state-based exchange that relies on the healthcare.gov website. He added that he’s confident that the court would give states time to react to any decision that invalidates the subsidies.

Vitale said he hopes that officials within the Department of Banking and Insurance are thinking about how to transition to a state-based exchange.

“I can’t think of any argument that would support 175,000 people losing their health insurance,” Vitale said, adding that he foresees that the primary expense to the state would be to hire phone customer-service agents to help consumers enroll.

When asked if Christie supports state action, or whether the state has been preparing, a spokesman for the governor provided a recent statement Christie made in New Hampshire.

“Congress should fix it. If Congress messed up the statute, the Congress and the president created this statute, they should fix it,” Christie said. “If they’re saying that’s not what they intended, then go back and fix it. It’s an easy thing to do … We’re out in the states trying to make this system work and, you know, the president and Congress should get together.”

A new report by New Jersey Policy Perspective estimated that 172,000 people would lose $648 million in annual subsidies, and that the resulting increase in insurance premiums would lead to more than 200,000 people losing their insurance.

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Premiums would rise because healthy people would be more likely to drop coverage once they lose their subsidies, leaving a less healthy group of people in the individual insurance market with higher average costs. Based on New Jersey’s previous experience in the 1990s, this would lead to another round of healthier people dropping coverage, resulting in a death spiral that could destroy the individual market.

The Department of Banking and Insurance reported recently that 214,641 state residents had coverage through the federal marketplace at the end of March. In addition, 111,887 bought individual insurance outside the marketplace, directly from insurers.

The premium increases expected by the potential exit of healthy people who lose subsidies would affect all 326,528 people in both groups, since the ACA requires that insurance prices are the same inside and outside the marketplace.

New Jersey Policy Perspective senior policy analyst Raymond J. Castro said Garden State residents would be hurt more than in most federal-marketplace states, since its subsidies are above the national average and its long-term unemployment rate is the second-highest in the country.

Castro said the simplest solution for New Jersey would be to join six other states in using the federal marketplace technology for a state exchange. Pennsylvania and Delaware were approved for this option this week.

“I’m not aware of any sort of full planning process that has involved the public,” Castro said of state officials. “That’s concerning, because New Jersey is now surrounded by states that have the state exchange or have been approved for a state exchange.”

Castro said current proposals from Republican members of Congress – such as extending the premiums in return for eliminated the mandate for individuals to buy insurance -- aren’t “serious” because they’re designed to unravel much of the ACA.

Castro added that while Christie vetoed two earlier proposals for state exchanges, he might have another take on the issue now that many residents have received the subsidies for more than a year.

The governor’s opposition to the ACA “doesn’t mean necessarily that he would veto some other kind of compromise, because we’re talking about people who would lose their healthcare, people who could actually die.”

To do otherwise, Castro said, would be “reprehensible.” Castro said the choice for Christie would be similar to when he chose to expand Medicaid.

“He realized there were going to be savings, so he sort of took the high road there, but I think the concern now is that he’s running for national office,” Castro said. “He would get flack from the right wing of his party … as long as he’s governor, he has a responsibility to New Jerseyans.”

Assemblyman Herb Conaway Jr. (D-Burlington), the chairman of the Assembly Health and Senior Services Committee, said having access to healthcare “affects the job you do, it affects your ability to work. It drives the economy.”

Conaway noted that some hospitals, including St. Francis Medical Center in Trenton where he works as a doctor, have seen revenue increases as the number of insured residents has grown. He said that to reverse that would cause havoc for patients and healthcare providers.

Assemblyman Louis D. Greenwald (D-Burlington and Camden) noted that the potential economic impact to the state, including the fact that the increase in insurance helped drive down the need for hospitals to receive charity-care payments from the state. Christie has proposed a $142 million cut to charity care based on the drop in the number of uninsured.

Without endorsing a particular state action, lobbyists for major segments of the healthcare industry said they’d like to see the residents continue to be insured.

Larry Downs, CEO of the Medical Society of New Jersey, said he’s concerned that those who could lose coverage would delay visits to their doctors, making their conditions worse and treatment more complicated.

“I hope the state or federal policymakers find a way to make sure that people have access to affordable coverage,” he said.

Wardell Sanders, president of the New Jersey Association of Health Plans, described the possibility of a court ruling negating the subsidies as “disappointing and very tough.”

Sanders said he hopes that the court upholds the subsidies, and the speculation over a different outcome “becomes a quirky and interesting footnote to our history.”

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