Mention the Patient Protection and Affordable Health Care Act (aka “ACA” or “Obamacare”) in any group of people and you are likely to end up in a spirited debate on the law’s merits. The topic seems to bring out strong opinions from almost every person you ask. However, there is one thing that people tend to agree upon when it comes to the law: Its purpose, which is providing Americans with affordable quality health care. Congress passed this law with the intention of increasing the number of Americans covered by health insurance and to decrease the cost of health care.
Knowing the controversial nature of the ACA it should come as no surprise that it has faced many challenges to both its legitimacy and implementation. Some challenges continue to make their way through the courts, in fact one case currently before the Supreme Court of the United States (King v Burwell) has the potential to cripple the core purpose of the law and render several of its provisions completely useless. At the center of this case are the health care exchanges. I am sure you have all heard of the exchanges – but how exactly do they work?
In the most simplistic terms, the ACA requires that most Americans obtain health insurance or pay a tax penalty – this is what is known as “the individual mandate.” In order to help those who are not covered to find an affordable plan, the ACA provides a mechanism for individuals to purchase competitively priced health insurance plans called exchanges. At the time the law was enacted each state had the opportunity to set up its own exchange program, but if they failed to do so the federal government could create and operate an exchange for residents of those states. Only 16 states along with the District of Columbia set up their own exchanges, leaving the remaining thirty-four states to rely on the federally operated exchange. Also contained in the ACA is the potential for millions of low and middle income families to participate in tax credits to offset the cost of policies purchased on the exchange. For those whose income is between 100% - 400% of the federal poverty level (between $ 11,770-$47,080 for an individual and between $24,250-$97,000 for a family of 4 in 2015) are eligible for the Premium Tax Credits. These tax credits can be paid to the insurer in advance to lower your monthly premium on a Marketplace plan or adjusted on your tax returns.
In King v. Burwell the plaintiffs claim without the premium tax credits they would actually be exempt from the individual mandate. Because of this they now must either pay for a policy (at the reduced rate) or subject themselves to the penalty – either way they will incur some financial cost. In order to avoid this cost and remain uninsured they have presented the argument that the IRS may only grant the tax credits for plans purchased through state operated exchanges – meaning residents of 16 states and the District of Columbia. Those who have purchased coverage under the federally operated exchange are not eligible. The case hinges on a portion of the law providing tax credits being available for those enrolled in an exchange “established by the State.”
A ruling in favor of the plaintiffs could have a devastating effect on millions of Americans who currently have coverage and receive a premium tax credit. The exact number is of those who could lose subsidies has not been precisely identified but numbers being reported vary from 7.5 to 8.2 to 9.3 million by 2016. While it is true that not everyone who loses a subsidy/tax credit will be forced to drop their insurance the fact of the matter is that many will find it too expensive to keep their plans without the credit. According to the Urban Institute a single person earning below $23,540/ year spends roughly 4.1% of their income on insurance by using a tax credit/subsidy. If tax credits/subsidies are eliminated that same person would now be paying 30% of their income to keep that same insurance, rendering insurance available on the federal exchange unaffordable to most Americans.
It is not just those who receive tax credits who would be affected by a ruling in favor of the plaintiffs – those who do not qualify for tax credits will also face a likely increase to the cost of their plans. Right now many of those who receive tax credits are relatively healthy people. By eliminating that group of people from the pool and retaining only those who are sicker and make more claims the cost of plans and premiums will undoubtedly rise. According to the Robert Wood Johnson Foundation and the Urban Institute those people could see as much as a 35% increase in premiums. Many of these people will no longer be able to afford the premiums and will be forced to drop coverage.
Much of the research and media coverage surrounding this case has been focused on what happens to those in the exchanges but one of the most overlooked issues - in my opinion – is what effect this will have on employers and their decision to provide coverage to their employees. Right now under the ACA employers with at least 50 full time equivalent employees can choose to provide affordable health insurance (what is considered “affordable” is a topic for another day) or subject themselves to penalties. Employers only face penalties however, if an employee goes to an exchange and receives a tax credit. If no tax credit is given then no employer penalty is EVER triggered! If employers face no penalty what incentive do they have to keep coverage – or to maintain reasonably affordable plans?
No matter what circumstance you find yourself in – receiving a premium tax credit for a plan purchased through an exchange, paying for a plan on the exchange without a tax credit or receiving employer provided coverage – the impact of King v. Burwell could have a significant impact on your health insurance benefits.