Thursday, February 26, 2015

Impact of the King v. Burwell case and the Possible End of Obamacare Subsidies

Let’s assume for a moment that next June Justice Kennedy (the swing vote on the Supreme Court) will side with conservative Justices Scalia, Thomas, Roberts and Alito in the case of King v. Burwell in ruling that Congress never intended to provide subsidies to Americans getting health insurance coverage through federal-run exchanges, thereby almost immediately making health insurance unaffordable for an estimated 7.5 million Americans who just recently got insurance.  Now, I know that sounds crazy, but that’s what the King v. Burwell case is all about. 

Here is some background on the King v. Burwell case.  A group of Republican Obamacare haters found four words in the Affordable Care Act that they say restricts subsidies to Americans purchasing health insurance through state-run exchanges only.  They argue that Obama and the Democrats who largely wrote and passed the Affordable Care Act were more interested in forcing states run by Republican Governors and Republican-controlled legislatures to set up state-run health care exchanges than they were in getting the largest number of Americans covered as possible.  Consequently, they say Democrats inserted stealth wording in the law to punish any American who lived in a Republican-controlled state that did not set up its own health insurance exchange. 

The four words in contention are “established by the state” and appear in the following section:
26 U.S.C. § 36B(b)(2)(A) and (c)(2)(A)         “[T]he premium subsidy amount” is based on the cost of a “qualified health plan. . . enrolled in through [a Marketplace] established by the State under § 1311.”

Republican Obamacare haters jumped on these four words and brought a suit claiming that federally operated exchanges could not provide subsidies since they were not “established by the state”  irregardless of the fact that the whole purpose of the Affordable Care Act was to provide subsidies to people who couldn’t afford health insurance so that they would have access to affordable health insurance.  

Let me put this in context.  Republican Obamacare haters are focused on four words in the legislation and choose to ignore the meaning of the other 381,513 words in the act in their entirety.  They say, forget about the rest of the Act.   .0001 % trumps the other 99.999 %. That would include the part of the law that requires that federally-run like state-run exchanges report information on the subsidies they provide even though (in the view of the Obamacare haters) Congress never intended the federal exchanges to provide subsidies, although Congress DID intend that federal exchanges provide extensive reporting on the amount and type of subsidies they weren’t providing and couldn’t legally provide anyway.  I guess the Repubs think Democrats were just setting up a “make work” program for bureaucrats to file reports on what the WERE NOT doing.

It gets better (or worse, if you will).  In order to bring a suit in the federal courts, the Obamacare haters’ lawyers had to find some people who had cause to sue because they had been damaged by the Act.  That’s tough since: (A) most Americans already have health insurance, (B) many of those who do not are exempt from any penalties because of low income or for other reasons, (C) many others who might pay a penalty can easily avoid doing so by getting insurance through the exchanges at no or very low cost, and (D) the Act provides virtually no mechanism for the federal government to collect the penalties/fines if someone refuses to pay.  

Regardless, the Obamacare hater lawyers finally found four Americans who would allow them to use their names.  They are two men and two women, all living in Virginia with a federally-operated health insurance exchange.  The facts about these four will make you scratch your head:
  • At least, one says she doesn’t know how her name got into the case.  She doesn’t remember talking to any lawyers, but maybe she did, she can’t remember.  And, she doesn’t want anyone to lose their health insurance, even though that is what she (or better her lawyers) are suing to make happen.
  • Two of the men are veterans and qualify for coverage under the VA if they would just go to the trouble of applying.  VA coverage would make them exempt from Obamacare fines.
  • One of these men and one woman are exempt from Obamacare fines because they can’t purchase insurance through the Virginia federal exchange even with subsidies for less than 8% of their income.  The Act says you can’t be required to pay more than 8%.  By the way, the reason their insurance premiums would be over 8% even with subsidies is that they are both smokers.
  • All four have health issues, some serious, that require treatment which hospitals are required to provide even though they have chosen not to get insurance even when at least some of them could afford to do so. In short, tax payers get stuck with the bill when people don't have health insurance and are unwilling or unable to pay for their care.  I know someone who has no health insurance and has run up a $2 million hospital bill they refuse to pay.
  • Finally, three of the four are well into their early 60s and will be soon eligible for Medicare whether they want it or not.  In fact, one of the women will become eligible for Medicare this summer, possibly even before the Supreme Court rules.  The two men who are already eligible for VA coverage will be eligible for Medicare within about a year from the time the Supreme Court rules.

If the words “trumped up” come to mind, you’re right.  The whole case should have been treated as a joke, which is how most legal scholars thought it would have been treated.  It wasn’t.  The activist conservative justices on the Supreme Court decided to ignore precedent and stick their noses into the wad of stinking garbage.

Does the Outcome of the Case Really Matter?

Let’s assume that the court overules practically all of the lower courts who have ruled that the Congress logically meant to provide subsidies to everyone regardless of whether they got their insurance through a federally-run or state-run exchange.  What would happen?

  • At least 7.5 million Americans in the 34 states that don’t run their own state exchange would lose subsidies.
  • These individuals’ out-of-pocket cost for health insurance would increase by an average of 256%, making access to health insurance unaffordable to most of them.
  • Although federal subsidies in these 34 states would be illegal, the other provisions of Obamacare would still apply.  For example, insurers would still have to guarantee access to insurance regardless of health status and sick people could not be charged more than healthy people.
  • Many healthy people in these states may drop their health care coverage knowing that insurers will have to sell them a policy if they later get seriously ill thus triggering an adverse selection “death spiral” where only the least healthy obtain health insurance, causing health insurance premiums to skyrocket, causing even more healthy people to drop out.  Eventually, health insurance becomes unaffordable for all.
  • Unable to make a profit, many insurance companies will stop selling insurance in these 34 states, resulting in less competition and ever increasing premiums for those who can still obtain insurance from the few carriers that remain.
  • Some of these 34 states might decide to create their own state-run exchanges in order for their citizens to obtain the federal subsidies.  However, that would require considerable time to accomplish.  New state legislation would be required in many of these states and might be difficult to pass with Republican Governors and Republican controlled legislatures filled with on record Obamacare hater/repealers.  As the Kaiser Foundation notes, “It took existing state-based marketplaces several years to put the necessary infrastructure into place, and they were able to access federal start-up grants that are no longer available, so states would have to cover the initial administrative expenses.
  • Of course, Congress could come to the rescue and simply amend the Act to read “established by the state or federal government.”  Three words would do it.  Fat chance that will happen with the current Republican-controlled Congress.

Bottom Line:  At least 7.5 million Americans and maybe all Americans who have been able to finally afford health insurance because of Obamacare could become uninsured once again.
On a brighter note, if the Supreme Court rules to destroy Obamacare, American voters just might throw the Republican Obamacare-hating nut cases out of office in 2016 in favor of Democrats who could finally do what we should have done all along—expand Medicare to cover all Americans.  Wouldn’t that be great!
Check out these sources for more information on the King v. Burwell case and its possible ramifications:

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