Looming Appeals Court Ruling Could Have Large Effect on Premiums

About five million U.S. residents would face higher health insurance premiums if federal courts rule in a lawsuit -- Halbig v. Burwell -- that subsidies cannot be provided to consumers who purchase health plans through the Affordable Care Act's federal insurance exchange, according to an Avalere Health report released Thursday, the Washington Times reports (Howell, Washington Times, 7/17).

Background on the Case

The lawsuit targets a May 2012 Internal Revenue Service rule that allows subsidies to be offered through the federal exchange.

The suit's 12 plaintiffs -- including a hospital chain and a restaurant franchise -- argue that the IRS rule should be invalidated because it contradicts what Congress originally intended in the ACA. Numerous ACA opponents also have argued that IRS exceeded its legal authority by issuing the rule.

However, U.S. District Court Judge Paul Friedman in January ruled against the plaintiffs, stating that both the text of the ACA and the law's structure "make clear that Congress intended to make premium tax credits available on both state-run and federally facilitated exchanges." The plaintiffs filed an appeal following the ruling.

Initial arguments were heard in the appeal at the U.S. Court of Appeals of the D.C. Circuit in March (California Healthline, 7/8).

During oral arguments before a three-judge panel the U.S. Court of Appeals of the D.C. Circuit in March, two of the judges appeared sympathetic to the plaintiffs' argument (Diamond, California Healthline, 3/26). A ruling is expected soon in the appeal (California Healthline, 7/8).

Details of Avalere Report

For the report, Avalere assumed that consumers would not switch plans after the ruling, even though losing the subsidies likely could qualify them for exemptions that allow them to choose less-costly coverage, the Times reports (Washington Times, 7/17).

According to the Avalere Vice President Caroline Pearson, an "ultimate decision" affecting who would be able to receive the subsidies and "absent some other remedy, individuals in at least 25 states who remain in their current plans could see an average premium increase of over 70%."

Meanwhile, Avalere analysts said that premiums could increase by an average of 80% to 95% in five states:

• Alaska;
• Florida;
• Georgia;
• Mississippi; and
• Missouri.

In the 36 states that have been using HealthCare.gov, as many as 87% of consumers in plans purchased through the exchanges received federal subsidies, according to Avalere (Lundine, Orlando Business Journal, 7/17).

Report: Consumers Could Lose $36.1B in Subsidies

Meanwhile, an analysis by the Urban Institute and Robert Wood Johnson Foundation released Thursday found that a ruling affecting who would be able to receive the subsidies could cause about 7.3 million people in 2016 to lose out on financial assistance totaling about $36.1 billion, Politico Pulse reports (Villacorta et al., Politico Pulse, 7/18).

According to the study, at least 11.8 million people are expected to enroll in coverage through HealthCare.gov in 34 states, and 7.3 million of them are expected to receive subsidies to offset their premiums.

The amount of lost subsidies would vary by state, reaching as much $4.8 billion in Florida and $5.6 billion in Texas. Further, the study found that a ruling restricting availability of the subsidies would "have a domino effect" on other ACA provisions. Specifically:

Eliminating the subsidies likely would mean that more individuals would qualify for exemptions from the law's individual mandate because coverage costs would equal more than 8% of their annual incomes;

The insurance pool could shrink significantly, which would spur insurers to seek a repeal of several consumer protections, including one that bars them from denying coverage to individuals with pre-existing conditions; and

More states likely would be forced to undertake running their own insurance exchanges (Blumberg et al., Urban Institute/Robert Wood Johnson Foundation analysis, July 2014).