The Supreme Court could gut subsidies for Obamacare customers in 34 states by the end of the month, the first step in the law’s “death spiral,” experts warn.
The court is expected to rule soon on King v. Burwell, a case that challenges the federal government’s authority to provide subsidies for 34 states that did not set up their own healthcare exchanges.
More than 6 million people could lose subsidies if the court rules in favor of King.
If such a ruling occurs and no action by Congress is taken, there is a “100 percent chance” of a death spiral for the insurance marketplaces in those states, said Gary Claxton, vice president of the left-leaning Kaiser Family Foundation.
A death spiral occurs when an insurance market is no longer sustainable. It commonly starts when there are too many sick people in the insurance pool and insurers are forced to raise prices to pay for their care.
Healthy and low-income people would be first to exit the Obamacare marketplaces, as they wouldn’t be able to afford coverage, Elizabeth Carpenter, a director at the research firm Avalere, told the Washington Examiner.
For the pool to be sustainable, healthy people who don’t require a lot of healthcare costs need to be in it. That is why the Obama administration made a push for younger millenials to enroll in the exchanges.
Under Obamacare, “insurers would still be required to guarantee access to coverage irrespective of health status and prohibited from charging sick people more than healthy people,” according to an analysis from the Kaiser foundation.
Therefore, premium revenue wouldn’t be enough to cover expenses, and that would lead to big increases. Avalere estimated that consumers who remain in the marketplaces could see annual premium hikes of more than $3,000.
A death spiral also would undermine the law’s individual mandate that calls for everyone to get insurance, Carpenter said.
“A majority of people who aren’t receiving subsidies would be exempt from the individual mandate because insurance would not be considered affordable under the law,” she said.
The spiral would start soon, as Supreme Court rulings take 25 days to go into effect after they are issued. It is possible the court could set a later date for the subsidies to be cut off.
“People would drop out as soon as August when they see they weren’t getting subsidies,” Claxton said.
Insurers would start losing money immediately because they can’t add new enrollees until open enrollment later this year, he added.
Insurers also must set premiums for 2016 at higher levels to recoup the lost enrollment and to reflect the higher-risk pool. Some insurers have already estimated higher rates of 50 percent or more for 2016 for Obamacare customers.
So far the ruling would affect only the residents in the 34 states that don’t have their own exchanges, Carpenter said. But there could be long-term effects for the rest of the country.
Congress could use the Supreme Court ruling to make broad changes to the entire law, Carpenter said.
Some Republicans have said they will act if the subsidies are killed, but a consensus on what that action will be remains murky.
Sen. Orrin Hatch, R-Utah, proposed this week keeping the subsidies in place for about two years and repeal parts of the healthcare law such as the individual mandate.
“This temporary transition should build a bridge that gets us away from Obamacare and puts us on a path toward lasting, patient-centered reform,” he said on the Senate floor earlier this week.
Meanwhile, a group of House Republicans took a more aggressive tact. A bill from Rep. Paul Gosar, R-Ariz., would not reinstate the subsidies in the 34 affected states but would exempt those states from several Obamacare mandates such as the individual mandate.
But it appears doubtful President Obama and Democrats will be open to wholesale changes to the healthcare law, especially stripping the mandates.
Obama has called on Congress to fix the small phrase in the law that sparked the lawsuit.
