Here’s how the SCOTUS decision could create an Obamacare death spiral

Industry and legal experts are warning that a Supreme Court ruling striking down subsidies could send rates soaring.

Insurance News


The US Supreme Court is set to rule this month on whether residents in states using the federal health insurance exchange are entitled to government subsidies under the Affordable Care Act.

The decision, which will be handed down Thursday or the following Monday, has the potential to make federally mandated health insurance unaffordable for the majority of Americans and do something experts have warned against since the law was passed – send the entire program into a death spiral.

“If the Court rules against the government and many people are no longer receiving subsidies, the result may be that a significant number of people may not have coverage because insurance will be unaffordable. Only people who are sickest will go onto the exchange,” said Robert Projansky, a partner with Proskauer and leader of the firm’s healthcare reform task force. “If that comes to pass, you have a situation where insurance companies are required to cover bad risks and won’t have healthy people to offset them.

“That could have a significant impact on the broader industry, insurers in particular.”

Projansky’s sentiments echo statements made earlier this week by Mike Kreidler, vice chair of the National Association of Insurance Commissioners’ health committee. Kreidler, who is also insurance commissioner for Washington state, told CNN insurers will have to raise rates “considerably” if only the sickest people maintain their health policies.

The decision in King v. Burwell has the potential to impact some 6.4 million enrollees, who could lose their subsidies as soon as August 1. Currently, 87% of enrollees in ACA plans receive government assistance that averages $272 a month.

Without that help, individual insurance plans will likely become unaffordable.

The employer mandate, too, would essentially become toothless in states using the federal exchange. Without subsidies available through, companies would effectively become exempt from the law’s requirements and penalties.

“If I’m an employer only in a state with the federal exchange, even if I don’t provide coverage to a sufficient number of full-time employees, I can’t have a pay or play problem even though it is triggered if just one person receives a subsidy in the exchange. I won’t have to pay because no one can receive the subsidy,” Projansky explained. “In addition, the separate tax for not providing affordable, minimum value coverage is per individual who receives a subsidy – so, certainly, the scope of the mandate will be limited if the Court decision goes against the government.”

In the contentious political environment, very few alternative plans to the current health insurance model have emerged. The White House has said its confidence in the Supreme Court has kept it from creating a “backup plan,” while states have largely been loath to take the lead themselves.

The Court has said it is handing down decisions in a number of cases both Thursday and Monday. The ruling in King v. Burwell  will likely be among them.

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