The White House has received good news about “Obamacare.” The number of uninsured Americans continues to drop, from 18 percent of Americans in 2013 to 11.9 percent in 2015. The uninsured rate among Latinos has begun to decline for the first time in decades. Although Americans are still deeply divided over the health reform law, there is some evidence that more people are starting to see it as a success.
King v. Burwell, the latest health reform case before the Supreme Court, threatens to undo much of this progress. The case considers whether the wording of the Affordable Care Act (ACA) prevents people from receiving government assistance in the form of tax breaks to buy insurance unless their state actively takes steps to establish a health care exchange through which customers shop for and purchase coverage.
After the ACA was passed, the states had the option of creating their own exchanges; only 16 chose to do so. The states knew that if they did not create these exchanges, the federal government would step in and take over with its version for residents to use. Although there are a number of reasons it may make more sense for states to be in charge of their exchanges, the expectation was that this decision would not directly affect consumers. They would still be able to shop for coverage and receive subsidies; it would just be through the federal government’s HealthCare.gov website rather than through an exchanges created by their states.
King v. Burwell could turn this upside down. If the court rules that the key section of the ACA should be read outside the context of the rest of the law, the tax credit that has made insurance more affordable for millions of people with incomes from 133 to 400 percent of the federal poverty level will be eliminated. In other words, an individual making approximately $16,000 to $47,000 would still be required to purchase coverage but would no longer receive help. The same is true for a family of four with income of approximately $33,000 to $95,000. Because the size of the tax credit varies, depending on income, a ruling against the government would hit poor families the hardest.
In the most recent enrollment period (ending February 2015), a staggering 87 percent of plans sold on federal exchanges were purchased with financial assistance. Those who bought insurance in these 34 states received an average monthly tax credit of $263, bringing their premiums down to $101. If the government loses this Supreme Court case, these individuals would be on the hook for the full $364. And as insurance becomes suddenly more expensive, as many as 9 million people could to lose coverage. Only the sickest would keep their insurance, meaning that the pool of insured people would shrink while becoming more expensive per person, causing premiums to increase by an estimated 35 percent. These consequences would be felt hardest by people the law was designed to help, such as the self-employed, part-time workers and those not insured through their employers.
Needless to say, this will be bad for consumers, insurers and providers, not to mention the nation’s public health. But there is another implication that is not getting much attention: a ruling against the government in King v. Burwell would have major spillover effects for Medicaid expansion.
The Affordable Care Act was written to expand Medicaid coverage to everyone poor enough to quality. The Supreme Court complicated this in 2012, making this part of “Obamacare” optional for states. Republican leaders are in a difficult position. Complying exposes them to challenges from the right, but resisting means the poorest residents of their state continue to go without insurance and the state loses out on the millions of dollars that would have gone to doctors, hospitals and other businesses. Twenty-nine states and the District of Columbia have expanded their Medicaid programs, increasing coverage for more than 11 million people, but nearly 4 million people in the rest of the country are without coverage because their states have refused to act.
The rising costs of premiums resulting from only sickest people buying insurance would make coverage – and thus the cost of implementing Medicaid waivers – more expensive.
Leaders in a handful of states have taken an alternative approach, negotiating waivers with Barack Obama’s administration that allow them to modify their Medicaid programs to meet local needs. A key element of many of these compromises is a tight connection between Medicaid and the states’ health insurance exchanges.
Arkansas was the first state to use a waiver to expand Medicaid. Its approach was called the private option because the state used federal money that would have been used to cover new enrollees on Medicaid to purchase private insurance through insurance exchanges. After individuals are determined to be eligible for Medicaid, they select an approved plan, and the state pays the premiums.
Michigan’s waiver does not use the private option but after four years allows enrollees the ability to purchase state-subsidized insurance through the federal exchange. Similarly, new enrollees in New Hampshire will use Medicaid money to purchase private coverage on the exchange beginning in 2016. Wisconsin did not use a waiver but uses its exchange to cover some of the Medicaid population.
This is a convenient way for Republican governors and legislators to accept the federal government’s money to expand access to Medicaid but tell their residents they are doing something different from “Obamacare.” Six states have taken this approach, and at least five others are discussing expansion plans. The result is still that more people are covered.
The effect of a ruling against the government in King v. Burwell in waiver states is complicated. Medicaid enrollees will continue to receive federal funding to purchase private insurance if subsidies are discontinued in states using the federal exchange. However, the rising costs of premiums after such a ruling — since only the sickest and most expensive people would buy insurance — would make this coverage and thus the cost of implementing Medicaid waivers more expensive.
Rising costs might make the connection between Medicaid expansion and an exchange no longer attractive or even feasible. One requirement of waivers is that they be cost neutral; costs should not exceed what Medicaid would spend without a waiver. This is hard enough as it is. A recent report from the Government Accountability Office found that Arkansas’ private option is going to cost more than $778 million more than if the state had expanded traditional Medicaid because it is more expensive to provide private insurance than it is to provide Medicaid.
A ruling against the government in King v. Burwell might drive conservative leaders to abandon the idea of building Medicaid into the exchanges. And the federal government might be more wary about approving waivers because of their cost. For example, a leading proposal in Utah relies on the continued existence of subsidies to provide insurance for everyone earning 100 to 400 percent of the poverty line. State officials are waiting on the Supreme Court decision before they make a final decision on which plan to implement.
Waivers have been lauded as a way for many states to expand Medicaid coverage under the Affordable Care Act. It has proved an attractive option for conservative leaders to overcome the political barriers to implementing health reform. A Supreme Court ruling discontinuing subsidies through the federal exchange would undermine this approach and raise serious questions about the viability of this path.