Tuesday's split decision in two federal appellate court cases over whether consumers shopping on the federal insurance exchange can receive premium subsidies could have major effects on the healthcare market. But some experts say officials in states that have not established their own state-run exchanges
could solve the problem fairly easily if they want to, and that they will face significant political pressure to do so.
A study by the Urban Institute concluded that 7.3 million Americans would lose $36.1 billion in federal subsidies in 2016 if states that defaulted to the federal exchange can't access subsidies. That would have a big impact on the exchange insurance market, both in the number of consumers buying plans and in the health status of the greatly reduced pool of enrollees.
There was widespread healthcare industry surprise and dismay over the 2-1 decision by a three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia in Halbig v. Burwell
that subsidies could only go to qualifying exchange plan enrollees in states that established their own exchanges, disallowing subsidies in up to 36 states served by the federal exchange.
“I was talking to a few people (in the insurance industry) and they were saying, 'Can you really believe this?' ” said David Axene, a fellow at the Society of Actuaries.
But any ramifications, for instance on insurance premiums, are unlikely to hit anytime soon, experts agree. “The ruling does create uncertainty for a number of healthcare stakeholders,” said Elizabeth Carpenter, a director at Avalere Health. But the decision “has no direct impact,” she said, and “I wouldn't anticipate this decision impacting (rate filings) in the near term.”
Meanwhile, political pressure to prevent millions of Americans from losing their substantial premium subsidies could prompt state elected officials who did not set up state-run exchanges to seek solutions to keep those subsidies flowing to their constituents.
Roughly two-thirds of the states that didn't establish their own exchange also have not expanded Medicaid
, a position that's put elected leaders in those states at odds with hospitals and other business interests. But the removal of premium subsidies could affect a broader group of people than not expanding Medicaid because those subsidies are available to households with incomes up to 400% of the federal poverty level.
“This would be a much more politically potent group,” said Paul Ginsburg, a healthcare policy expert at the University of Southern California. “I think there will be a lot of pressure on states to do something to avail their citizens of these tax credits.”
It even could alter the hyperpartisan dynamics in Washington around the Affordable Care Act if there are negative financial consequences for constituents in conservative states, Ginsburg said. That theoretically could lead congressional Republicans to become more amenable to making technical corrections to the law, including fixing what many legal experts see as the drafting problem that led to the Halbig
ruling. “This will just increase the pressure on Republicans to come to the table,” he said.
Experts say the Obama administration would bend over backwards to make it easier for states to establish their own exchanges. In Oregon, for example, state officials are turning to HealthCare.gov
for enrollment and subsidy determinations for 2015 following the disastrous performance of Oregon's state-run exchange website. But Oregon will continue to handle other duties, such as outreach activities, and will still be considered a state-based exchange. That could potentially serve as a blueprint for other states.
Indeed, some analysts believe that states using HealthCare.gov could find an easy legal workaround. Nicholas Bagley, an assistant professor of law at the University of Michigan, wrote
in a blog post at “The Incidental Economist” that a state could “establish an exchange and appoint a state-incorporated entity to oversee and manage it. That state-incorporated entity could then contract with HealthCare.gov to operate the exchange.”
That would make tax subsidies available under the Halbig
decision, Bagley said. “Even a bad outcome in Halbig
might not matter that much in the end,” he said.
But Dan Schuyler, the senior director of exchange technology at consultancy Leavitt Partners, cautioned that the process of setting up a state-run exchange is more complex than that even if a state simply uses existing technology. There are a lot of other activities associated with an exchange, he noted. A state would have control of plan management, outreach, education and call centers. And the HealthCare.gov platform would still have to interact with the state's Medicaid program.
“You'd still have a lot of IT planning (and) integration activities that would need to take place,” Schuyler said. “So it's not like you declare you're going to build a state-based exchange, flip a switch, and two days later you're up and running.” As a best-case scenario, he said, it would take eight months.
Schuyler believes states are better equipped to run and oversee exchanges. “I would like to see states transition from federally facilitated marketplaces, but not this way,” he said.Follow Paul Demko on Twitter: @MHpdemko
Follow Darius Tahir on Twitter: @dariustahir