Yesterday, the U.S. Supreme Court heard oral arguments in a case with significant ramifications for the future of Obamacare – and potentially for insurance markets in Ohio as well as thousands of individual Ohioans. The outcome of the case King v. Burwell essentially hinges on how the Court determines the meaning of just four words in the 2,400-page Affordable Care Act (ACA).
A key tenet of the ACA is the individual mandate that requires everyone to have coverage. In order to make that affordable, the law provides access to tax credits to individuals who earn less than 400% of the federal poverty level. However, the plain language of the ACA says these credits are available to taxpayers who enrolled in a health plan through an exchange “established by the State.”
Because the ACA gave states the choice of whether or not to set up an exchange, the interpretation of “established by the state” is critical. If a state created an exchange, the law is clear: individuals in that state have access to the federal subsidies. But what if a state did not? Can its citizens who purchased coverage through the federal exchange receive tax-credit subsidies? The plaintiffs in King v. Burwell argue if the exchange wasn’t “established by the state,” taxpayers in that state would be ineligible.
More than half of states, including Ohio, allowed the federal government to create an exchange within their states instead of setting up their own. If the Court sides with the plaintiffs, the nearly 200,000 Ohioans receiving tax credits would lose them. That would mean most would also lose their health insurance because it would immediately become unaffordable.
Most subsidy recipients, particularly the healthiest customers, would simply forfeit their coverage. Conversely, the sickest customers would do everything they could to find a way to continue paying for their coverage, leaving health insurers with a pool of disproportionately sick customers. Since insurers are prohibited by the ACA from increasing their rates midyear, fewer paying customers combined with higher health care expenses could leave insurers unable to cover claims. This could even lead to some insurers becoming insolvent.
Is there “plan b” for states using the federal exchange? The Obama administration says it has no contingency plan, but Senate Republicans and House Republicans do. In Ohio, Gov. John Kasich has said he’s open to creating an Ohio exchange. Democratic Ohio Representatives Michael Stinziano and Nickie Antonio plan to introduce legislation that would do just that. As with anything Obamacare-related, the only guarantee is that a fix won’t be easy to get agreement on. However, policymakers in both Washington, D.C. and Columbus realize the Court could force them to move fast to devise a workable solution as the Supreme Court is expect to make a decision in King v. Burwell in June.