This article originally appeared at Healthcare Dive on January 13, 2015.
The King v. Burwell legal challenge, which could rock the very foundation of the Affordable Care Act, is a debate over whether individuals purchasing health insurance on the federal exchange are entitled to premium subsidies in a similar manner as individuals purchasing health insurance on state-based exchanges.
The challenge argues that the current implementation by the Internal Revenue Service, which allows for subsidies on federal exchanges, exceeds the letter of the law.
Given that only 14 states have their own exchanges, a ruling in favor of the plaintiff would affect millions of people in the other 36 states, as well as the private insurance market—and possibly the survival of the ACA. Not only might the decision have an economic impact, but a political impact as well, as it contributes to ongoing debate over the ACA as a whole.
“If King v. Burwell is decided in favor of the plaintiff, it has the potential to profoundly impact the private insurance market in many states unless a fix is introduced,” says healthcare economist and author Adam C. Powell, Ph.D., president of Payer+Provider Syndicate, a management advisory and operational consulting firm focused on the managed care and healthcare delivery industries.
Here’s how Powell tells Healthcaredive.com the King v. Burwell case is expected to impact private payers if the plaintiffs win:
- If the case is decided in favor of the plaintiff, health insurers will still be obligated to offer health insurance to individuals without risk-adjusting the premiums. But if premiums are not subsidized, people previously eligible for subsidies may become less likely to purchase insurance.
- The sickest people will likely be the most motivated to purchase insurance, regardless of the costs. As a result, the average health of the people with insurance in the states will decline–a phenomenon known as adverse selection. Since the ACA does not allow health insurance to be priced based on an individual’s health, insurers will not be able to offer lower premiums to healthier people as they had done before the ACA in many states.
- The exit of healthy people from the individual insurance market could cause it to go into the often-mentioned (and controversial) “death spiral,” where premiums rise in response to the exit of the healthy, which then leads to further exit of the healthy.
- The individual mandate does not apply to Americans who cannot find insurance that costs less than 8% of their income. If premiums were to rapidly rise, the individual mandate would cease to apply to more people, furthering the potential for adverse selection. The employer penalties only apply when employees receive government subsidies–which could not occur if it is ruled that employees may not receive subsidies when using the federal exchange.
“Doom, however, is not inevitable,” Powell says. “If King v. Burwell is decided for the plaintiff, the ACA could be modified by Congress to allow for subsidies to be paid through the federal exchange. Likewise, the ACA could be modified to reintroduce underwriting, reducing the likelihood that insurance markets will collapse due to adverse selection.”
The Supreme Court is set to hear the case on March 4 and is expected to make a decision by late June.