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Clashing rulings on exchange subsidies raise fear of instability


By Andis Robeznieks
Posted: July 22, 2014 - 6:15 pm ET
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Healthcare providers and insurers fear that today's conflicting appellate court rulings on the legality of Obamacare premium subsidies offered through the federal insurance exchange could have a destabilizing effect on the newly expanded insurance market.

While a three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia ruled that the Affordable Care Act does not allow subsidies on federally run exchanges, a panel of the 4th U.S. Circuit Court of Appeals in Richmond, Va., held that the law does allow the subsidies. Both cases are certain to be appealed, and many observers expect the issue to be ultimately decided by the U.S. Supreme Court.

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"It will cause a whole lot less coverage, and a whole lot more confusion,” said Richard Umbdenstock, CEO of the American Hospital Association. “I continue to think the way the bill was written was pretty clear. (Congress) intended for people to get these subsidies."

Marty Anderson, director of consumer marketing for Security Health Plan, the health insurance arm of the Marshfield (Wis.) Clinic Health System, said insurers anticipated that more Americans would sign up through the exchanges during the 2015 open enrollment, which runs from Nov. 15, 2014, through Feb. 15, 2015. But today's ruling by the District of Columbia circuit court in Halbig v. Burwell could affect that.

“Uncertainty last time resulted in people sitting on the sidelines,” he said. “We thought they might participate this time because the penalties for not having insurance will be higher and they've seen the benefits others have had by getting coverage. But if this is still undecided, we may see a dampening effect on enrollment.”

“The rules keep changing daily, weekly, and monthly—and big changes, too,” said Ruth Krystopolski, president of the Sanford Health Plan, the insurance arm of the Sioux Falls, S.D.-based Sanford Health system. “So it does make planning hard.”

If the subsidies ultimately are struck down in up to 36 states using the federal exchange, it will be hard to enforce the Affordable Care Act's individual mandate that everyone obtain health insurance, she said. Most Americans who bought coverage through the exchanges received substantial subsidies to make the premium affordable, and economists say many would drop coverage without the subsidies.

But some healthcare groups said the D.C. Circuit Court's split decision striking down the subsidies would not hold back implementation of the reform law, at least for now. “These issues typically take months or longer to be fully resolved by the courts,” said Brendan Buck, a spokesman for America's Health Insurance Plans. “In the meantime, health plans remain focused on ensuring stability, affordability and accessibility for consumers.”

Insurers generally have already submitted their 2015 health plans for approval by state regulators. So there's little potential for them to increase premiums in response to the uncertainty created by the appellate court ruling.

“That horse has pretty much left the barn for this (2015) open enrollment,” said John Gorman, a Washington, D.C.-based consultant who works with insurers. Beyond that, the impact of the subsidies being eliminated in most states would be so dramatic that insurers could not offset it with higher rates, he added. “There's no amount of premiums that you could charge that could make up for subsidies being rescinded.”

On the other hand, insurers still could decide not to offer exchange plans in states relying on the federal exchange, because the withdrawal of subsidies could sharply reduce the size of the exchange market and lead to a less healthy pool of enrollees.

In most states insurers don't have to make a final determination about which plans they're going to sell until August or September, said James O'Connor, consulting actuary with the firm Milliman. “If the uncertainty drags out, some health plans may decide not to have as many plans in the exchanges as they may have otherwise, or some health plans may decide not to participate at all until the matter's cleared up,” he said.

Anderson said Security Health Plan will be taking a wait-and-see approach as the appeals process in these cases runs its course. Anderson didn't think there would be any short-term implications for people already enrolled. About 98% of the 25,000 people who enrolled with Security Health through the federal exchange received federal premium tax credits. Statewide in Wisconsin, about 90% of the 140,000 who enrolled received subsidies.

But he had dire predictions if the District of Columbia's decision in the Halbig v. Burwell case is ultimately upheld. “You're going to see the uninsured rate increase dramatically,” he said. “The people who enrolled won't be able to afford it without the subsidy.” And that would have a ripple effect, with healthcare organizations burdened with a lot more uncompensated care, he added.

Dr. Benjamin Chu, president of Kaiser Permanente Southern California, predicts the issue is headed to the U.S. Supreme Court. "I can only hope the Supreme Court reverses,” said Chu, the immediate past chair of the AHA. “The law gave the states the right to choose, and if they chose not to set up their own exchanges, that gave the responsibility to the feds by inference. You should be able to infer from that that the right to give subsidies flowed to the federal government by inference.”

Chu said the Halbig ruling, if upheld, would have a severe negative impact on consumers. “Millions of members of the exchanges could be adversely impacted by that—and that is the last thing we want to do,” he said.

In Illinois, where the exchange is run in partnership with the federal government, about 77% of the 217,000 people who enrolled in exchange plans qualified for premium tax credits.

“This health coverage is making a real, positive impact on people's lives and well-being,” said Jennifer Koehler, executive director of the state exchange, Get Covered Illinois. “We are monitoring today's appeals court decisions in which two courts have rendered differing rulings. The bottom line for now is that nothing has changed and the subsidies created under the law to help people cover the cost of their healthcare remain in effect.”

Chip Kahn, CEO of the Federation of American Hospitals, predicted today's Halbig decision would be overturned. “I'm convinced that at the end of the day, logic will rule out and the subsidies will continue to be provided to eligible Americans,” Kahn said. “My recommendation to hospitals would be to proceed under that assumption—and that's all they can do. Because the people are covered right now, and they're not going to take away their coverage.”

—Merrill Goozner contributed to this report.

Follow Andis Robeznieks on Twitter: @MHARobeznieks

Follow Paul Demko on Twitter: @MHpdemko


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