WASHINGTON -- Get ready for a new line from the crowd that brought a lawsuit before the Supreme Court threatening to devastate Obamacare and snatch health insurance away from millions of people: The lawsuit won’t actually devastate Obamacare and snatch health insurance away from millions of people.
It may seem an odd argument coming from conservatives who created and pursued this legal case for the past three years as a terrific way to ruin Obamacare. But if they win, millions of people are going to lose their health insurance, and Americans who aren’t happy about that are going look for someone to blame -- maybe the people who brought the lawsuit, for example, or the Republican politicians who supported them.
The Supreme Court agreed last fall to hear the King v. Burwell case seeking to invalidate health insurance subsidies in more than two-thirds of the states. Since then, backers of this legal attack on the Affordable Care Act have been attempting to reassure the public that congressional Republicans would have a plan to ease the suffering of those who’d lose their health insurance along with their subsidies. But just over a month before the high court is expected to issue its ruling, the best the GOP has come up with are plans to postpone all those people losing their health insurance.
The lawsuit alleges the wording of the Affordable Care Act doesn’t permit subsidies to be provided to people buying coverage in the 34 states where the federal government operates health insurance exchanges instead of the states themselves. Recent analyses by two think tanks, the Rand Corp. and the Urban Institute, project that a loss for President Barack Obama at the Supreme Court would translate into about 8 million people becoming uninsured.
In the absence of a congressional fix to this crisis, trying to persuade the public there isn't much to worry about might be an understandable fallback strategy if you want the lawsuit to prevail. Enter the Heritage Foundation and the American Enterprise Institute, two conservative think tanks in Washington that do.
A few weeks ago, the Heritage Foundation’s Edmund Haislmaier published an “Issue Brief” entitled "King v. Burwell: A Loss of Subsidy Does Not Mean a Loss of Coverage.” That’s a provocative title, considering 87 percent of the 8.8 million enrollees from federal exchanges receive those tax credit subsidies, meaning they have low or moderate incomes.
Haislmaier recently was seen saying it’s "premature" to conclude the huge drop in the uninsured rate since Obamacare passed is the result of Obamacare passing. In this brief, he correctly points out the Affordable Care Act and previous federal and state laws would enable current Obamacare enrollees to switch to some other form of health insurance if the lawsuit he supports succeeds in making their current plans unaffordable. (The brief also chides low-income people for using their subsidies to buy “king-crab-legs-and-steak” insurance rather than take the cheapest possible “powdered-milk-and-frozen-peas” plans.)
“In sum, should the Supreme Court’s eventual ruling in King v. Burwell result in people losing insurance subsidies, the affected individuals will have options for maintaining their coverage or choosing replacement coverage,” Haislmaier wrote. There’s even a chart.
Is that good news for people at risk of losing their health insurance subsidies? Maybe not. “Of course, some might still not be able to afford the unsubsidized premium even if they switched to a less expensive plan,” Haislmaier adds as a disclaimer. Of course.
That seems like it could be a problem, since 83 percent of Obamacare enrollees on the federal exchanges have annual incomes of 250 percent of the federal poverty level or less, which works out to no more than $23,450 for a single person, according to Avalere Health, a consulting firm. In other words, these aren’t Americans with a lot of extra money. And the average value of the tax credits they stand to lose is $263 a month, a substantial amount for people at this income level.
There’s a lot of variation in the price of health insurance, but a look at national average premiums and cost-sharing requirements illustrates what the “Let them eat Bronze plans” line of thinking ignores.
A 40-year-old at the poverty line, which is $11,770 for a single person, would pay $20 a month for a mid-tier Silver plan with tax credits. That amounts to about 2 percent of her annual income. Take away the subsidies, and her premiums jump almost 14-fold to $276 -- or about 28 percent of her income.
What about dropping down to a lesser Bronze policy with higher out-of-pocket costs like deductibles?
That would cost almost 11 times as much as the subsidized Silver plan, at $213 a month, or about 22 percent of her income. Another person making twice as much money as her would see his premiums for the same Silver policy rise by 80 percent, which would eat up 14 percent of his income. His premiums would rise by 39 percent if he switched to a Bronze plan, which would cost him 11 percent of his yearly earnings.
Even opting for a slimmer policy might not make sense for lower-income people, considering how much more Bronze policyholders have to spend before their coverage kicks in. For example, the average deductible for an individual Bronze plan is $5,181, compared to $2,927 for a Silver plan, according to Health Pocket.
And this doesn’t even factor in the effects of a second type of subsidy only available to people earning up to 250 percent of poverty, which reduces their out-of-pocket health care expenses, and which also would go away in the high court rules for the plaintiffs.
These effects are less dramatic up the income scale, but the examples demonstrate why the Affordable Care Act subsidizes health insurance for low- and middle-income households, and why the projections conclude that, for many millions, a loss of subsidy does mean a loss of coverage.
There's another argument about why the Obamacare lawsuit won’t be as bad as everyone else has said. This one comes from Joel Zinberg, a surgeon and lawyer from the Mount Sinai Hospital in New York who’s a visiting scholar at the American Enterprise Institute. In a March article, Zinberg questioned the mere concept of an insurance “death spiral,” not just whether a Supreme Court ruling gutting Obamacare could cause one.
A death spiral is an industry term for what happens when too many sick people and not enough healthy people are buying insurance in the same market. Prices rise, causing people who need insurance the least to drop out; this is called “adverse selection.” That leaves insurers with a group of customers with higher medical expenses, who are more motivated to keep paying for coverage. But then their expenses cause prices to rise further, weeding out more customers, and so on.
“Are ‘death spirals’ real, or just a way to frighten the public?” Zinberg writes, foreclosing the possibility they are both. “There is little reason to believe a death spiral would follow a plaintiff’s victory in King v. Burwell,” he continues.
In contrast to his counterpart at the Heritage Foundation, Zinberg rests his conclusion largely on the realization that tons of people would find unsubsidized health insurance so expensive, they wouldn’t be able to afford it no matter how sick they were and no matter how badly they needed it. So, good news for the insurance markets, then.
Zinberg cites two economic studies of past situations in states that had laws restricting health insurers’ ability to vary prices by health status and age. In these cases, such as in New York in the early 1990s, health insurance markets experienced “adverse selection” but didn’t totally collapse, those economists concluded.
According to the authors of one of those papers, Zinberg is partially right -- with a huge caveat. In emails to The Huffington Post, Bradley Herring of the Johns Hopkins Bloomberg School of Public Health and Mark Pauly of the Wharton School at the University of Pennsylvania said their research does suggest a death spiral may not result from a court decision against the subsidies.
That caveat? They both still believe such a ruling would destabilize the insurance markets in the affected states. The majority of people the Urban Institute projects would lose coverage are those whose subsidies would disappear, and premiums would indeed rise for those who keep their insurance, Herring wrote.
The Urban Institute’s and Rand’s analyses mainly are based on the expectation that lots of people will drop their health insurance immediately after the subsidies go away, and that the disruption caused by so many people fleeing the insurance markets in those states will cause further damage. The problem could especially be acute because the Affordable Care Act would still require health insurance companies to accept any customer, no matter how many pre-existing conditions she has, and would still limit the extent to which older people can be charged more than younger people.
Pauly noted that he supported the Obama administration in the lawsuit, and wrote: “The end of subsidies would mean that millions of people at all risk levels getting subsidies on exchanges would withdraw from the market. If that isn’t disruption I do not know what is.”
The findings of the other paper on which Zinberg bases his case don’t apply to the current situation because the circumstances and insurance markets are too different from the ones studied in the 1990s, wrote one its coauthors, Thomas Buchmueller, the chairman of business economics at the University of Michigan’s Ross School of Business. He served in Obama's White House as senior health economist on the Council of Economic Advisors in 2011 and 2012.
Buchmueller’s conclusion was more blunt. “Eliminating the premium tax credits will have a devastating effect on the individual health insurance market,” he wrote. “A large number of these people will not be able to afford coverage without those subsidies and will therefore likely drop out of the market. It is reasonable to expect that those who stay in the market even after the subsidies go away will be higher risk consumers who know they have a strong need for medical care.”
None of this should be a surprise to anyone who knows how the Affordable Care Act works, or what those who brought the legal challenge expect. Just ask the man in charge of the libertarian think tank that midwifed it, Lawson Bader, president of the Competitive Enterprise Institute.
“Think of this as a domino,” Bader told Reason magazine last month. “If we win, what happens immediately is about 5 million people in 34 states no longer receive subsidies," he said. “The insurance market essentially implodes over a couple of years.”
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