Opinion: A Quirk in Language That Could Cost Thousands Their Health Coverage

Joel C. Cantor | March 3, 2015 | Opinion
The Supreme Court’s decision in King v. Burwell could destabilize the insurance marketplace not just in New Jersey but across the country

Joel C. Cantor
This week the Supreme Court is hearing its second major case about the Affordable Care Act, King v. Burwell. The case is about a quirk of language in the ACA law. Specifically, one section of the law states that private insurance subsidies are to be administered by marketplaces established by the states. Opponents of the law argue that that provision makes it illegal for healthcare.gov, which is run by the federal government not the states, to administer the subsidies. Others argue that the law makes clear that Congress intended that subsidies could run through healthcare.gov. The Supreme Court will resolve this dispute.

The ACA’s private-insurance subsidies, in the form of sliding-scale premium tax credits, are the most important “active ingredient” in the law’s health insurance provisions. The ACA also requires that most people buy insurance, a provision known as the individual mandate. The mandate is the stick and the subsidies are the carrot. The subsidies (the carrot) are by far the more important mechanism for expanding coverage. Nearly 90 percent of people buying coverage through healthcare.gov are eligible for subsidies. Most of those would drop coverage without them.

Before the ACA coverage reforms when into effect in 2014, 17.1 percent of nonelderly adults nationwide had no health insurance. By the end 2014 that percentage had dropped to 12.9 percent. That figure does not count hundreds of thousands more who will have signed up since the start of 2015 (the open enrollment period is just ending).

Of over 1 million uninsured in New Jersey before the ACA was implemented, about one in four is eligible for subsidized private coverage. While not all have enrolled, the majority are expected to do so.

If the court rules that healthcare.gov can’t be used to administer premium subsidies, an estimated 237,000 New Jersey residents would lose premium subsidies, amounting to a loss of $727.6 million in subsidies statewide ($3,070 per subsidized person). Nearly 240,000 are expected to drop coverage in the face of sharply higher premium costs.

Premiums would rise for everyone buying coverage directly from an insurance company or through healthcare.gov, not just those eligible for subsidies. Health insurance premiums are based on the average health spending of the insured population, called the risk pool. Risk pools with sicker people get charged higher premiums. Many of those benefiting from subsidies are healthy. So if subsidies go away, the risk pool will be much sicker and premiums would immediately spike upward for all of those who buy coverage directly from insurance companies. People who get group coverage through a job would see less impact.

There would also be a major impact on healthcare providers who benefit from having more patients with private insurance. They depend on the revenue. Because of the Medicaid and private-insurance coverage expansions, the ACA dramatically cuts charity-care funding. If New Jersey has 240,000 more uninsured, as is projected if the Supreme Court blocks subsidies through healthcare.gov, hospitals and other providers will be stuck with a substantial bill.

Thirty-four states, including New Jersey, rely on healthcare.gov. The politics in each state is different. But keeping the subsidies for their eligible populations will be enormously challenging even for states that have the political will to do so. It can take years to build the infrastructure needed to run a health-insurance marketplace. It may be possible for states to arrange to run their own marketplace using the healthcare.gov infrastructure, but they would still need to take on new regulatory and administrative responsibilities that will take a good deal of time to establish.

If the Court bans subsidies through the federal insurance marketplace and gives the state little lead time to adjust, there will be chaos in New Jersey’s health insurance market. Many thousands will become uninsured and premiums will spike for thousands more. If the Court rules to ban subsidies, but gives states time to adapt, policymakers here and in other states will have to move quickly if they choose to avert the likely failure of the individual health-insurance market.