Maybe King v. Burwell Won’t Be As Bad

June 21st, 2015

Two pieces in the New York Times today take a strikingly different tone from the usual doom-and-gloom forecasts of what will happen if the Supreme Court invalidates the IRS Rule in King v. Burwell.

First, in an article titled “Health Insurers Brace for Supreme Court Rulings,” we get an analysis that perhaps we are not destined for a death spiral if the subsidies are no longer paid in states without exchanges.

A much-diminished individual market would not cripple the large companies, Mr. Zaharuk said, because they are diversified, handling insurance for employers and participating in government programs likeMedicare. “If they lose this business, it doesn’t really trip them up that much,” he said.

For smaller insurers, however, the story is different. The blow from a court decision invalidating the subsidies “would be disastrous,” Mr. Zaharuk said.

Many of the consumer-oriented so-called co-op plans, created under the law to foster competition on the exchanges, would be especially hard hit because they are so focused on the individual market. They are also more vulnerable financially because they are start-ups.

“We would be at risk,” said Tom Zumtobel, chief executive of Meritus, a co-op serving Arizona that now has 54,000 people enrolled in its plans. While Meritus expects to be able to eventually broaden its base of customers, 90 percent of its policies are now sold to individuals, and almost 80 percent of those people are receiving subsidies.

“We wouldn’t be done, but we would have to retool and refocus our products,” Mr. Zumtobel said.

Other co-ops say they have already diversified. “We can weather it,” said Shaun Greene, an executive at Arches Health Plan in Utah, which has increasingly been selling policies to large employers.

That doesn’t sound that dismal. The article even seems to acknowledge that an effort to “dismantle” the law could be feasible if risk pools are instituted.

Another possibility would be for policy makers to dismantle the law, allowing the individual market to return to the way things were before the Affordable Care Act was enacted. Insurers would be free to price policies based on a person’s health and could refuse to cover everyone. And the states or the federal government could try to create special pools for the very sick.

Some in the industry say they are optimistic that federal and state officials will work out some sort of fix. They say that the industry is unlikely to return to a time when it could deny coverage to people with pre-existing medical conditions. “I don’t see any going back,” Mr. Zumtobel said.

Still others argue that insurers will find a way to continue selling individual policies, even if the law’s other provisions are not changed by Congress. “Insurers know their business, and they’re very good at marketing,” said Mr. Angoff, the former regulator. “The major insurers are accustomed to marketing to different segments in very sophisticated ways. They’d figure out a way to continue to do business.”

This article takes such a different tone that articles I’ve read recently. Perhaps the insurance companies are trying to convey to their investors that the sky will not fall if the Court invalidates the IRS Rule.

As a side note, the article notes how the insurance companies are flourishing.

Large for-profit insurance companies have benefited from the law, with subsidies enabling millions of new customers to sign up. As the market for employer-based coverage stalled, the remade market for individual insurance offered an alternative place to sell policies. “In the longer term, this was seen as a possible growth engine,” he said.

Despite initial concerns, the large insurers seem to be prospering, with household names like Anthem, Aetna and UnitedHealthcare actively selling coverage through the marketplaces. “What a bonanza the A.C.A. has been for the health insurance industry,” said Jay Angoff, a former federal and state insurance regulator.


This comes on the back of a CBO study released showing “mixed effects” if the ACA is repealed:

The nonpartisan Congressional Budget Office said Friday that repealing the Affordable Care Act would significantly increasefederal budget deficits and the number of people who are uninsured.

But, it said, repealing the law would also raise economic output because it would create incentives for some people to work more. …

The budget office said that repealing the law — with its insurance subsidies and expanded eligibility for Medicaid — would increase federal budget deficits by $353 billion in the coming decade, largely because the government would forgo big savings in Medicare and would lose revenue from new taxes and fees. But after taking account of the positive economic effects of a repeal, it said, the increase in the deficit would be $137 billion.

The law tends to “reduce the supply of labor by reducing some people’s incentives to work,” the report said. Repealing it would reverse those incentives and could increase the output of goods and services, the gross domestic product, by seven-tenths of 1 percent, the study said.

(Obviously this rebukes the notion that the ACA allows people to take risks and become entrepreneurs–it actually decreases incentives to work).

Second, the Times published an article titled “States Take Few Steps to Fill Gap if Supreme Court Blocks Health Subsidies.”

As the Supreme Court prepares to rule on whether to block health insurance subsidies in 34 states that use the federal insurance exchange, Pennsylvania and Delaware are the best prepared. They have submitted detailed plans for creating their own exchanges by next year, a move intended to keep subsidies flowing to their residents, though possibly with an interruption.

Mississippi’s insurance commissioner, Mike Chaney, says he has a tentative plan for establishing a state exchange, but federal officials would have to loosen the rules. In Illinois, the state hospital association laid out options for quickly establishing an exchange in a blunt memo to Gov. Bruce Rauner and state legislators this month. …

Michael O. Leavitt, who was secretary of health and human services under President George W. Bush, tried to nudge more federal exchange states into action in a letter to their governors and legislators last week.

“They’re not scrambling as of yet over this,” Mr. Leavitt said. “But when the force of millions of people who are going to have their insurance affected begins to influence this debate, it’s going to look different to those who are feeling the pressure. And I think it will be the governors.” …

Mr. Chaney, the insurance commissioner in Mississippi, said he was fairly certain that his governor, Phil Bryant, a Republican up for re-election this year, would not support his plan to create a state exchange, even though 80,000 residents could lose subsidized insurance as a result.

“He’s got a pretty good approval rating, and he doesn’t have a real strong opponent,” Mr. Chaney said. “So he’s just not worried.”

More interesting to watch, perhaps, could be certain Republican governors who are subject to term limits and not worried about re-election, like Gov. Bill Haslam of Tennessee. Mr. Haslam, who just began his second term, pushed this year to expand Medicaid there, but the legislature refused to go along. Gov. Rick Snyder of Michigan, who successfully pushed for Medicaid expansion and who tried unsuccessfully several years ago to get the Legislature to approve a state exchange, is another Republican who may be willing to take the political risk.

Arkansas has also applied for a state-based exchange and received permission from the federal government to move ahead with it. Most of the state’s exchange, however, would not be ready until 2017. The legislature passed a law this year requiring a vote on whether to proceed with the exchange if the Supreme Court invalidates the subsidies.

In other words, it’s not going to be the end of the world, as we have been led to fear.