How Will the Insurance Industry React?
by Eric Wilson Mr. Wilson is a guest columist for Advisor Magazine and L&HA e-newsLink. He has been in the insurance industy since 1991. He began selling services to the insurance community, then served as a consultant to the industy before opening his own agency in 2003. He has clients in Illinois, Wisconsin, Ohio, Indiana and New Hampshire. He has spoken on the topic of Health Savings Accounts throughout the midwest. Connect with him by e-mail: email@example.com; Visit www.isellhealth.com
The Supreme Court of the United States has ruled 6-3 in favor of the Affordable Care Act challenge of King v. Burwell.
The wording of the law says individuals whose incomes fall within a specified range are eligible for premium assistance tax credits to purchase insurance through exchanges established by a state. The key words are 'established by a State'.
That is what the court case is about. It does not say for purchases made through a Federal exchange. In 2012, the Internal Revenue Service issued a rule that said not only were the credits available in state based exchanges but also in the 34 other states who did not set up their own exchanges.
The Legality of Federal Exchanges
The plaintiffs argued that subsidies in Federal exchanges are not legal. The Government argued that it was never meant to mean “a State” but “all States”. Regardless of what the intent was, the court has now ruled on if those Americans in 34 States who are receiving Advanced Premium Tax Credits (subsidies) will be able to keep them.
Had the court ruled in favor of the plaintiff, those receiving subsidies in the state base exchanges would then, pending a Congressional Amendment, have lost their subsidies. It is believed that roughly 8 million people are receiving subsidies in states that are being run by the Federal Government.
Now to clarify, those who lose their subsidies do not lose their insurance. The insurance carrier would still provide the coverage they have selected except, the client would not pay the full price. This in many cases will be too expensive for many of the policy holders to keep, so you may see them “cancel themselves.”
One of the key elements of the law is the individual mandate, which is what requires everyone to purchase insurance or pay the fine ( or tax) which in 2016 is 2% of your Modified Adjusted Gross Income (MAGI).
If your premium is more that 8% of your household income, you are exempt from having to purchase insurance and the tax. If the subsidies disappear, you will have many Americans whose premium is now greater than 8% of their household income.
They can drop coverage without penalty. If there is no incentive to purchase insurance, you will see a lot opt out. Of course if there is no tax penalty it reduces revenue to the IRS. Most of the insurance carriers have had to file their rates and plans for 2016. Some have asked for increases of over 50%. We do not know if Congress at this time will pass a temporary fix. We do not know if they did pass a fix if the Senate and President would sign off on it.
We will expect that the cost of insurance will be too expensive for most of the people receiving subsidies to keep their insurance. If only the sick people keep their insurance, then we have a classic death spiral, in which the sick people who need insurance the most will have it, the healthy people will opt out, when only sick people are buying insurance the rates continue to rise.
Since the Affordable Care Act passed we have seen fourteen insurance carriers exit the individual health insurance market, the most recent being Assurant who earlier announced they will exit the market and this month stopped taking new applications. There are also talks of Humana selling their individual business; Anthem has had talks with Cigna about acquiring them.
Now that the court has ruled in favor of King you will see a lot of mergers. This will be done to save administrative costs and to capture more market share. Of course, we all know what happens when competition is reduced we start to see monopolies and you will see prices soar.
The next thing I think we will see is even smaller networks of doctors and hospitals. In order to reduce premiums, Insurance carriers will offer more HMO type plans or PPO plans with a smaller network of providers. They will reduce their reimbursement to the doctors and hospitals and make it up on volume.
Sadly, this could force doctors to see more patients, which forces them to spend less time with each patient, which in many cases will lead to a reduction in quality of care. Congress could act and change everything again!!
So far we have discussed what happens basically if Congress does nothing (or if Congress does something and the President does not endorse it).
Senator Ron Johnson (R) Wisconsin has a proposed a bill with 29 co-sponsors that would allow the Federal Subsidies to remain in effect until August of 2017. It eliminates some of the mandates along the way, but in short creates a bridge out of the ACA and allows time for the states to act as well as a new president.
Congress could repeal and replace the law. There are several options that have been proposed by the Republican Party. Congressman Tom Price (R) Georgia, has a bill HR 2300. It now calls for simple aged based tax credits, reduces the role of the IRS, it also gives a one-time $1000 tax credit for those who open a Health Savings Account.
Senator Bill Cassidy (R) Louisiana has a plan also based on patient care. There is another republican plan Sponsored by Senators Orrin Hatch (R) Utah, Richard Burr (R) NC and Fred Upton ( R) Michigan. This plan called Choice Affordability, Responsibility and Empowerment or CARE repeals the individual mandate and has a transitional period where all with a pre-existing condition could get coverage.
If you keep coverage in force you keep those protections. One of the bests out there and one that I think could get the Presidents signature is from Avik Roy called Transcending Obamacare. This plan does not call for a repeal of "Obamacare." It does reform the ACA exchanges and migrate those on Medicaid into the exchanges.
Without repealing "Obamacare" I think you will get support from the left side of the aisle, since it replaces a good amount of the law and eliminates most of the mandates, it can get support from the right.
So, because the Supreme Court has ruled in favor of King, the law must be changed, replaced or repealed as the cost will continue to escalate and without subsidies be very difficult for most to afford. It still does not address the high cost of insurance issue, but those who do qualify for subsidies will continue to get them, regardless of what state they live in.