Can The Health Care Industry Save Obamacare?

Hospitals and insurance companies are coming to the law’s defense before the Supreme Court.

National Journal
Sam Baker
Jan. 29, 2015, 1:56 a.m.

Health in­sur­ance com­pan­ies and hos­pit­als moun­ted an ag­gress­ive de­fense of Obama­care’s in­sur­ance sub­sidies Wed­nes­day, warn­ing the Su­preme Court that elim­in­at­ing the pay­ments would be “grossly in­equit­able” to mil­lions of Amer­ic­ans.

Both in­dus­tries have a lot on the line as the court pre­pares to hear or­al ar­gu­ments in a law­suit that aims to cut off the Af­ford­able Care Act’s premi­um sub­sidies in most of the coun­try.

In an amicus brief filed Wed­nes­day, health in­surers said a rul­ing against the sub­sidies would have wide­spread and severe ripple ef­fects, po­ten­tially throw­ing states’ en­tire in­sur­ance mar­kets in­to chaos.

Stop­ping the flow of sub­sidies “would cre­ate severely dys­func­tion­al in­sur­ance mar­kets” in 34 states, Amer­ica’s Health In­sur­ance Plans, the in­dustry’s lead­ing trade or­gan­iz­a­tion, said in its amicus brief. “It would leave con­sumers in those States with a more un­stable mar­ket and far high­er costs than if the ACA had not been en­acted.”

The case be­fore the Su­preme Court, King v. Bur­well, ar­gues that Obama­care’s sub­sidies—which help the vast ma­jor­ity of en­rollees cov­er part of their premi­ums—should only be avail­able in states that es­tab­lished their own in­sur­ance ex­changes. People who live in the states that did not set up their own mar­ket­places should not be re­ceiv­ing fin­an­cial as­sist­ance, the chal­lengers ar­gue.

AHIP, though, said the state and fed­er­al ex­changes work the same as a prac­tic­al is­sue. The sub­sidies and the law’s in­di­vidu­al man­date are part of an in­ter­con­nec­ted series of policies de­signed to sta­bil­ize in­sur­ance mar­kets, AHIP said—ir­re­spect­ive of who runs the ex­change in any par­tic­u­lar mar­ket.

“There is no prac­tic­al reas­on to dis­tin­guish between state- and fed­er­ally-op­er­ated ex­changes in this re­gard,” the brief says. It makes no dif­fer­ence to the mar­ket re­forms wheth­er the ex­change is state- or fed­er­ally op­er­ated. Like­wise from the per­spect­ive of con­sumers, State- and fed­er­ally-op­er­ated ex­changes per­form the same ba­sic func­tions.”

Ac­cord­ing to in­de­pend­ent es­tim­ates, 8 to 10 mil­lion people would likely lose their cov­er­age if the Court in­val­id­ates sub­sidies in the fed­er­ally run ex­changes. And most of the pay­ments in­surers were plan­ning to re­ceive this year—about $32 bil­lion, ac­cord­ing to the Con­gres­sion­al Budget Of­fice—would dis­ap­pear as well.

But the con­sequences would spill well bey­ond con­sumers who per­son­ally lost their sub­sidies, AHIP ar­gued. The in­dustry or­gan­iz­a­tion warned of an in­sur­ance “death spir­al” if the Court rules against Obama­care: Only the only sick­est people would be will­ing to buy in­sur­ance even without fin­an­cial as­sist­ance or a man­date to do so, AHIP ar­gued, which would cause premi­ums to in­crease, which would push out more people un­til only the sick­est of the sick re­mained and in­sur­ance be­came totally un­af­ford­able, if it would be avail­able at all.

“These sig­ni­fic­ant ad­verse con­sequences are fun­da­ment­ally in­con­sist­ent with the goals of the ACA, which was in­ten­ded to achieve na­tion­wide re­form and make stable, func­tion­ing in­sur­ance mar­kets avail­able to all Amer­ic­ans,” AHIP wrote.

Hos­pit­als made a sim­il­ar ar­gu­ment in their amicus brief Wed­nes­day. Neal Katyal, a former act­ing so­li­cit­or gen­er­al who is rep­res­ent­ing sev­er­al large hos­pit­al or­gan­iz­a­tions, poin­ted to the ex­per­i­ence of states that tried some of Obama­care’s mar­ket re­forms—such as guar­an­tee­ing cov­er­age to sick people—without also provid­ing sub­sidies or en­act­ing an in­di­vidu­al man­date.

Those state-level ex­per­i­ments were all fail­ures. And, Katyal ar­gued, Con­gress knew that—mean­ing there’s no way it would have in­ten­tion­ally set states up for the same res­ult now.

“It’s really kind of crazy to think that Con­gress would have en­acted a scheme like that” by mak­ing sub­sidies avail­able only in cer­tain states while the rest of the law ap­plied na­tion­wide, Katyal told re­port­ers Wed­nes­day.

He noted that Obama­care in­cluded cuts in Medi­care and Medi­caid pay­ments to hos­pit­als, in­clud­ing re­duc­tions in the pay­ments they re­ceive to off­set the cost of treat­ing un­in­sured pa­tients. Con­gress re­duced those pay­ments in part be­cause more pa­tients would have in­sur­ance and be able to pay their bills. But, Katyal noted, if the Su­preme Court in­val­id­ates Obama­care’s sub­sidies, those cus­tom­ers would van­ish—yet the oth­er pay­ment cuts would re­main.

The res­ult would be “a wide­spread and massive dis­rup­tion “¦ to the en­tire health care sys­tem na­tion­wide,” he said.