Health Insurance’s Future in NJ Hinges on High Court’s King v. Burwell Ruling

Joel C. Cantor | June 19, 2015 | Opinion
If the court overturns marketplace subsidies, it could mean the end of the non-group insurance market in New Jersey

Joel C. Cantor
On the eve of the anticipated U.S. Supreme Court ruling in King v. Burwell it is time to take stock of broad changes in New Jersey’s nongroup (sometimes called individual) health insurance market. If the court sides with opponents of the Affordable Care Act (ACA) in the case, thousands in New Jersey will lose subsidized health insurance coverage and premiums will rise sharply for thousands more, or worse.

Before commenting on the consequences of the King v. Burwell ruling, the chart shows what happened in our nongroup insurance market before and after the main provisions of the ACA took effect in 2014. Between 2007, when the Great Recession started, and 2013 there were two kinds of plans available to people without employment-based or government coverage. The number of people with the first kind of coverage, “standard” plans with comprehensive benefits, declined steadily as the pool of enrollees skewed older and sicker and premiums rose.

At the same time, enrollment grew in the second plan type, called “Basic and Essential.” These B&E plans covered only very limited benefits and left enrollees with catastrophic illness with exposure to unlimited out-of-pocket costs. The thin benefits of the B&E made premiums more affordable, but the benefit package was too thin to be allowed under the ACA, and these plans were phased out by the end of 2014.

Replacing the old nongroup plans, including standard and B&E plans, new ACA Qualified Health Plans (QHPs) are now offered on the ACA marketplace (including and directly from insurers. Subsidies in the form of federal premium tax credits and cost-sharing assistance are only available on the marketplace, and over 80 percent of New Jersey residents buying in the marketplace receive subsidies.

The chart shows that after the ACA went into effect in 2014, the number of New Jersey residents with nongroup coverage rose dramatically. According to data from New Jersey regulators, during the first quarter of this year 214,641 individuals were covered through the marketplace (including about 178,000 with subsidies), and an additional 111,887 purchased directly from insurers. This is the highest nongroup enrollment in New Jersey since the numbers have been tracked.

The trends in nongroup enrollment before 2014 were driven mainly by the high cost of coverage and shifting mix of enrollees. There was no penalty for being uninsured at that time, and New Jersey market rules allowed people with preexisting conditions to buy coverage with only temporary waiting periods. Consequently, large numbers of higher-risk people purchased the more comprehensive plans, which led to higher costs, leading healthier individuals to drop coverage. The skinny B&E plans had much lower premiums, which attracted younger and healthier buyers.

As I noted, the ACA banned B&E plans, but it established new QHPs with broader benefits and an array of cost-sharing and provider-network options. Many people with modest incomes could buy more comprehensive plans on the marketplace at subsidized prices for about the same as B&E premiums, and the enrollment trend starting in 2014 suggests that many did.

But not all of those who enrolled in the ACA QHPs came from pre-ACA nongroup plans or the ranks of the uninsured. National data suggests that over half of those buying in the marketplace were previously uninsured.

Very likely some people buying QHPs were previously covered through small businesses. In fact, businesses without employees, including mom-and-pop shops and partnerships that bought in the small-group market before the ACA reforms now must buy nongroup coverage. In addition, many low-wage workers who could find better deals in the subsidized marketplace than through their employers likely made the change.

Consequences of King v. Burwell

New Jersey is one of 37 states relying on the federal government to administer the marketplace. And as I wrote in this column previously the outcome of King v. Burwell will determine whether subsidies can continue to be administered by the federal government. If the court rules that they cannot, nearly 200,000 people receiving subsidies in the state will lose access to them. Most of those individuals will find unsubsidized premiums out of reach and they will end up uninsured.

Premiums will rise significantly for others, even those buying directly from insurers outside the marketplace. This is because premiums are based on average risk in the entire market and subsidies draw younger and healthier people into the risk pool. Unless something is done to stop it, the New Jersey nongroup market would once again experience cycles of healthy people dropping coverage followed by rising premiums. Health insurers and healthcare providers would deeply feel the financial impact of the failing insurance market.

If neither the Congress in Washington nor policymakers in New Jersey act in response to a decision in King overturning the subsidies, we would see the demise of the New Jersey nongroup insurance market.

If the Supreme Court decision goes the other way, not blocking the federal marketplace from delivering subsidies, the trend in the chart is likely to continue, albeit at a slower rate, as more uninsured buy coverage in future annual enrollment periods.