With a U.S. Supreme Court decision looming in the case King v. Burwell, many are wondering how the outcome could affect hospitals, health systems, insurers and everyday Americans.
A decision in the case, which challenges healthcare insurance exchange subsidies for individuals who obtain health insurance through the federally-run exchange, is expected by the end of June. At issue is whether the Internal Revenue Service may enforce regulations to extend tax-credit subsidies to coverage purchased through exchanges established by the federal government under the Patient Protection and Affordable Care Act.
Amy E. Sanders, an associate with the law firm of Bass, Berry & Sims, Paul H. Keckley, managing director in the Navigant Healthcare practice, and Joel Ario, managing director of Manatt Health Solutions and prior Director of the Office of Health Insurance Exchanges at HHS, forecasted the King v. Burwell decision, as well as the impact the decision could have on hospitals, payers and states.
Thoughts on the outcome of King v. Burwell
Amy Sanders: Ms. Sanders believes the decision could go either way. "It's a really close case. Both sides have very strong arguments," she says.
Although there might be better odds of the U.S. Supreme Court ruling in favor of the federal government, the plaintiffs have a compelling argument. Ms. Sanders believes there are a lot of conflicts and ambiguity in the subsidies and exchange provisions throughout the PPACA. For instance, one part guarantees subsidies to any applicable taxpayer, which is defined by the federal poverty line, but it doesn't specify whether those are federal or state subsidies. Overall, Ms. Sanders believes King v. Burwell is not a constitutional law case, but rather a question of how the PPACA was interpreted. The main framework for approaching that question is whether that provision of the statute, which uses the language “an exchange established by the state,” was ambiguous.
Paul Keckley: Mr. Keckley believes the U.S. Supreme Court will rule against the plaintiffs. "I think the intent of the law will prevail rather than the letter of the law," he says. Mr. Keckley believes the fact that the IRS acting as the agent of the government in essence concluded that the subsidies were accessible to both HealthCare.gov and state exchange enrollees is what will be the basis of the high court's decision. He projects a 6-3 ruling.
Joel Ario: Mr. Ario believes the case hinges on whether the justices take external factors into account, including the possibility of disrupting the marketplace and making health insurance unaffordable for millions of Americans.
The betting line on the case was 60-40 against the government before the justices heard the oral arguments for the case in early March. However, after the arguments, the bets shifted to 60-40 for the government, according to Mr. Ario. The reason for this shift, he said, was that Justice Anthony Kennedy indicated a real concern about the consequences of the vote in the marketplace. "If he's paying attention to the consequences of the case in the marketplace, [Justice Kennedy] will decide for the government," Mr. Ario said. However, he added, "It may be the plain language dictates the result, and [Justice Kennedy] will feel he doesn't have the ability to pay attention to the consequences."
Thoughts on the impact for insurers
AS: Ms. Sanders believes the impact for insurers depends on how reliant they are on the individual market. If an individual qualifies for a subsidy, it's unlikely that person would be able to afford insurance without the subsidy. Those who can't afford coverage are exempt from the PPACA mandate that everybody have health insurance. Therefore, there may not be as many people buying insurance, so that will affect insurers' bottom line. However, if the insurer is not as dependent on the individual market, then the King v. Burwell decision might not matter as much, according to Ms. Sanders. Still, no matter what the high court decides, individuals with pre-existing conditions are still guaranteed access to insurance.
PK: Mr. Keckley believes the issue behind the decision for insurers is how much premiums will go up and how much the individual market will shrink as a result of the decision. "The premiums go up either way, it's just a matter of how much more they go up if they side with King,” Keckley says. "Therefore, these 7 million plus people go without subsidies and they get thrown back into the ranks of the uninsured, then the risk pool gets thrown out of kilter." Overall, he believes the volatility of the individual market is really what's up for grabs in King v. Burwell. If the high court says subsidies are only for those who sign up for coverage through the state exchanges then he projects skyrocketing premium costs for the individual market. "I think it's really the future of the individual market for insurance that's really the story here," Mr. Keckley added.
JA: If the oddsmakers are correct and the court upholds the government, the case will quickly recede in popular memory, it will have no consequence on the market and the PPACA will move forward, Mr. Ario said.
If the court votes in favor of King, Mr. Ario believes insurers will start losing money quickly and most healthy beneficiaries will drop their coverage. In this case, smaller insurers will feel pressure to exit the market and cut back on participation pretty quickly, he said.
Thoughts on the impact for hospitals and health systems
AS: If the U.S. Supreme Court rules in favor of the plaintiffs, Ms. Sanders believes hospitals in states with federal exchanges that have seen a reduction in uninsured people due to subsidies could see that trend reversed. These hospitals, especially safety-net hospitals, could also see an increase in bad debt if the high court strikes down subsidies because they previously agreed to Medicaid and Medicare payment cuts essentially/or partly in exchange for receiving new patients under Medicaid expansion or individuals with commercial insurance who had received federal subsidies. Still, Ms. Sanders notes that a lot of organizations have been planning for these possibilities and building it into their future plans. Also, even if the subsidies are invalidated, federal officials will likely keep paying subsidies for a month or two. "People won't feel the impact right away, which means hospitals won't feel the impact right away. Everyone will have some time to adjust," Ms. Sanders says.
PK: Mr. Keckley also believes hospitals in states with a large number of people that were either expecting to be subsidized or already felt they were will see their bad debt go up if the U.S. Supreme Court strikes down the subsidies. If the court rules in favor of the plaintiffs, it will also mean the call centers for scheduling appointments are going to be slammed in the short-term following the decision because the individuals have scheduled visits and procedures. Mr. Keckley believes they'll ask if they can still see the physician and the hospital has to make that decision. "So do you take a risk that you'll collect nothing if these people are not subsidized?" he says. "Hospitals end up being the front line. The folks will call their insurance, but their more immediate call will be for the scheduled test or procedure because they've given their insurance information to get that booked and the physician's office and hospital admissions. I think that will be a story in July if the court rules for King." If the high court rules in favor of the government, there will be new premiums for the individual market by the fall, Mr. Keckley projects. And he believes the individual market will shrink, and essentially become a market for independent contractors who can afford insurance, rather than for the masses of people between 100 percent and 400 percent of the federal poverty level that were targeted with the PPACA.
JA: If the court rules in favor of King, many individuals will lose subsidies and will not be able to afford the health insurance coverage they gained under the PPACA, Mr. Ario said, which will "raise difficult issues about uncompensated care and payment plans."
"It could return us to the days when people had real medical needs and no resources to pay for those needs," he said.
What options do states have?
AS: Ms. Sanders says one option is for states with federal exchanges to establish their own exchanges, which is easy to say not to do because of political opposition. There are some talks in various states, including those with state exchanges, of banding together to create shared marketplaces and doing multi-state exchanges. Some states are also considering establishing their own exchanges and subcontracting out to the federal government, according to Ms. Sanders. But she noted that the PPACA defines a state exchange as one set up no later than Jan. 1, 2014. So a U.S. Supreme Court ruling against the government could mean setting up an exchange after Jan. 1, 2014 still doesn't allow for subsidies.
PK: A number of states are looking at stop gap measures, anywhere from 12-month to 18- month emergency funding, for the individuals in the state that will not get subsidies if the U.S. Supreme Court rules against the government, according to Mr. Keckley. Like Ms. Sanders, he noted states also could get special dispensation to operate a state-run exchange that subcontracts through HealthCare.gov. "So those two mechanisms would allow states if the ruling goes against Burwell to pivot pretty fast, and the irony of this is there's recognition that if the ruling goes for the plaintiffs this will kind of trickle down to not just the individual insurance market," Mr. Keckley says. "But what about the individual mandate overall? What about the employer mandate overall? Does this become a dismantling of the insurance elements of the law?"
JA: If the U.S. Supreme Court votes in favor of the plaintiff, there are two scenarios, Mr. Ario said. The first is that the government subsidies as implemented are immediately shut off in August. The second is that subsidies are allowed to continue through the end of the year — or an even longer period of time — giving Congress and states time to adjust.
Mr. Ario believes a congressional fix is unlikely, so some of the 34 states affected will start to move to state-based exchanges, though only a relatively small amount of states will move quickly. He says it is likely HHS will make a pathway so it is even easier for states to move to state-based exchanges.
"It depends on what kind of reaction there is to 8 million people losing coverage," Mr. Ario said. "I would expect a strong reaction, but also political pressure from opponents of the law. How that will come out, I don't know. It will be a front-burner issue in many states."
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