The U.S. Supreme Court's 6-3 ruling to uphold the Affordable Care Act's premium subsidies in all states provided immediate reassurance for health insurance companies and consumers who relied on the subsidies.
But the health insurance market under the ACA still faces hurdles and more years of tinkering before the business reaches a true level of stability. Attention now turns toward the premium rates increases for 2016 and beyond.
Insurers and regulators across the country expressed relief Thursday that the Supreme Court ruled for the Obama administration in King v. Burwell, therefore not invalidating the subsidies provided in the federal marketplace and keeping the health insurance market intact.
“Uncertainty in insurance is not a good thing,” said Monica Lindeen, president of the National Association of Insurance Commissioners and the head of Montana's insurance department. “The decision allows regulators, consumers and the industry a level of certainty that supports stability for insurance markets in our states.”
Actuaries and insurance experts said if subsidies were eliminated in states that rely on the federal government to run their exchange, a “death spiral” would have ensued. Health coverage would have become unaffordable for many, practically scrapping the individual mandate. Healthy people would have dropped their plans, while sick people tried to hold on to coverage that they otherwise might not have gotten. Health insurance companies would've raised premiums by astronomical amounts to account for the sicker member base.
But Thursday's ruling makes that nothing more than a hypothetical of the past. “This avoids the likely kind of chaos that would've resulted in a ruling for King,” said Cori Uccello, senior health fellow at the American Academy of Actuaries.
Consumer advocates also hailed the decision as a victory for low- and moderate-income people who relied on the premium tax credits. “The Supreme Court did the right thing, focusing on what Congress intended rather than nit-picking over wording that wasn't perfect,” said Tahira Cunningham, health policy director at the Greenlining Institute, a not-for-profit public policy center. “Millions of Americans can now breathe a sigh of relief that their health insurance won't be taken away, and it will still be affordable.”
Perhaps most notably, justices ruled that premium subsidies were clearly and unambiguously meant to apply to every exchange, which cements subsidies as part of the law moving forward. “The subsidies are really a critical part of the ACA and its goal of increasing access,” said Brietta Clark, a health law professor at Loyola Marymount University in Los Angeles. “That goal could not be achieved without the subsidies on the federal exchange.”
The loss of the ACA's subsidies would've hurt some insurance companies more than others. Provider-owned plans, regional HMOs and the not-for-profit co-op plans created by the ACA cover many low-income people who have premium subsidies.
“We recognize the importance of these subsidies to some of our members, often the most vulnerable in our communities,” Land of Lincoln Health, a co-op insurer in Illinois, said in a statement. “We are both thrilled and relieved that those individuals and families will be able to maintain coverage for their essential healthcare needs. This ruling may prevent some families from having to make the intolerable decision between medical care or food and shelter.”
Blue Cross and Blue Shield plans also are major players on state and federal exchanges and have made large investments in the new marketplaces. For example, Health Care Service Corp. offers Blue Cross exchange plans in its five states, including Illinois and Texas. Although the company lost $282 million in the first year of the exchanges, HCSC said in a statement that the King ruling allows it to “remain focused on providing an array of affordable products and services to our members and the market.”
“Blue Cross and Blue Shield companies are committed to providing quality, affordable coverage community by community, nationwide, and we will continue in that long tradition,” Blue Cross and Blue Shield Association CEO Scott Serota said in a statement. But he noted that “there is still more work to be done to make healthcare more affordable.”
Aetna, Anthem, Humana and the other national for-profit health insurers had stakes in the ACA's exchange crowd, albeit those members were a smaller part of their business. The Supreme Court's decision to keep subsidies flowing will allow those businesses to possibly ramp up their involvement in more states, which lagged behind the not-for-profit plans.
Molina Healthcare, a publicly traded Medicaid insurer, has 266,000 ACA exchange members in nine states. Most of those are in Florida, which uses the federal exchange. The Long Beach, Calif.-based insurer viewed the ruling as a positive for the company and its members, more than 80% of whom received sizable premium subsidies.
“If the subsidies had not been upheld, then substantial numbers of our patients would've had to give up their coverage,” said Dr. J. Mario Molina, CEO of Molina Healthcare. “The decision affirms our strategy that it's important to have a product for people who leave their Medicaid coverage but want to stay with their health plan or doctor.”
Now, health insurers will have to focus on ways to improve and stabilize the individual and small-group markets going forward. Many companies have requested hefty premium increases for 2016, although a Kaiser Family Foundation analysis finds that premium hikes are still up only modestly overall year over year.
Insurers used a full year's worth of exchange member data for their 2016 rate filings, with some finding that health claims were high for large swaths of people. Experts agree, though, that the certainty of having subsidies bodes well for future rate planning.
“This is news is good for rates,” said Mike Mascolo, a national employee benefits practice leader at Wells Fargo. “That's going to expand the risk pool and bring in both healthy and unhealthy people.”
But subsidies by themselves don't guarantee affordability of health coverage. In addition, insurers may still need a few years before actuaries can reliably make sound decisions.
“Everyone's adjusting to the new program and the shifting dynamics, and we're still not at the steady equilibrium of enrollment and premiums,” Uccello said. “There's still some uncertainty in the rate development process.”
With the King case in the books, political leaders and consumers will be pushing state insurance commissioners to monitor and, if appropriate, keep premium increases to a reasonable amount, Clark of Loyola said.
“So far we've really had some success with regulators pushing back on insurance companies,” she said. “This requires continued vigilance and continually looking at what's happening at the market.”