King v. Burwell Obamacare Case Makes States Consider Creating Exchanges If Subsidies Are Struck Down

The Affordable Care Act faced its latest test Wednesday as the Supreme Court began hearing arguments in King v. Burwell, a case that has led to predictions of the gutting of Obamacare, a “death spiral” for health care and even the creation of a two-tiered health insurance system nationwide, should the court rule in favor of the plaintiffs.

To prepare for the ruling, at least nine states have proposed legislation this year to create their own state-run exchanges as possible contingency plans if the court does strike down subsidies. But experts say these efforts, even if successful, won’t immediately mitigate consequences such as an average rise of 43 percent in the cost of insurance premiums for those living in affected states. At the same time, effective planning is extremely difficult for states when they can’t know how the court will rule.

“No one can guess or project what the results will be. It puts states in a bind,” said Richard Cauchi, health program director at the National Conference of State Legislatures. “There’s not enough evidence for the states to say today or this week, ‘We need to change our law,' or 'We need to change our process to have a state-run exchange.’”

At the heart of King v. Burwell are health exchanges and subsidies under the Affordable Care Act. Health exchanges are essentially marketplaces where people can browse different health insurance plans and pick one to purchase. States can organize and run their own exchanges, or they can opt to use the federally run exchange, HealthCare.gov.

Under the Affordable Care Act, those who qualify financially and buy health insurance through those exchanges can receive subsidies to offset the costs. These subsidies are critical for many people by making it possible for them to buy health insurance. What’s disputed in the King v. Burwell case is whether subsidies can be granted to people living in states that use the federal exchange. If the Supreme Court decides that subsidies are only for those using state-run exchanges, buyers of health insurance in the 37 states that use the federal system could lose their subsidies, to devastating effect.

Somewhere from 8 million to 9 million people would lose health care coverage, and “many more would see their premiums increase … as healthier people drop coverage, leaving the less healthy in the remaining insurance pool,” Robert Doherty, senior vice president at the American College of Physicians, estimated in an email. But for states that want to prevent this from happening, there’s no clear or easy path.

“States … could keep the subsidies if they establish their own exchange. But there are huge obstacles — procedural and [cost-related] — to doing so,” Doherty said. “It couldn’t be done immediately, and politically this would be a tough sell with many conservative state legislatures.” These challenges appear to be a deterrent, at least to some states.

“I don’t think [states] are doing too much to prepare for it,” Robert Town, a professor of health care management at the Wharton School of Business at the University of Pennsylvania, said of a potential plaintiff victory in King v. Burwell. “The legislature has to approve the exchange and fund it, and in many places that’s just not going to happen in time.”

Town said that implementation is another hurdle. “You’d have to get all the information on what plans are available,” he added. “They’d have to set up secure links to the Internal Revenue Service and Homeland Security. They’d have to have verification of eligibility, and then set up the links to insurers to get enrollment process. And build the website.” States that originally opted to set up their own health care exchanges after the Affordable Care Act was passed in 2010 “had quite a bit of lead time and some of them still struggled,” he said. “So to do it in six months or in five months, that’s a tall order,” Town added.

The Supreme Court is expected to rule on King v. Burwell in June. If the court strikes down subsidies, the Obama administration has said that it has no contingency plan to help the people in up to 37 states that could lose subsidies. Some states have contingency plans in the works, but without knowing what exactly the Supreme Court will rule, they can’t tailor their plans to counter the decision. Still, a plaintiff victory could leave them scrambling to roll out backup plans.

At least nine of those 37 states have pending legislation to convert their health care exchanges from a fully federal or a federally partnered system to one run by the state. Indiana, Maine, Missouri, New Hampshire, New Jersey, Ohio, Pennsylvania, Tennessee and Texas currently have bills in their respective state legislatures, according to the National Conference of State Legislatures.

Indiana Gov. Mike Pence said in mid-February he would wait for a Supreme Court decision before deciding what steps to take to offer health insurance to residents. In Missouri, Rep. Margo McNeil introduced a bill Feb. 9 that didn’t explicitly mention King v. Burwell but gave the state the authority to implement its own exchange “if individuals are unable to receive federal tax credit subsidies … for health insurance purchased through a federally facilitated health benefit exchange.”

In the Ohio House of Representatives, two Democrats, Michael Stinziano and Nickie Antonio, plan to propose a bill to create a state-run insurance exchange, an idea that was “absolutely sparked by King v. Burwell,” Stinziano said. “Knowing what’s at risk if the court rules in one direction — that’s what the motivation is for revisiting the state exchange.” (The state considered doing so when Obamacare became law but decided to use the federal exchange instead.) Stinziano said he was “very concerned” about a possible plaintiff victory in the Supreme Court, but he admitted that the legislature was unlikely to act preemptively. “Until we see the court’s decision, we’re probably not going to pass that [legislation],” he said. Stinziano said he expected to introduce the bill Wednesday or Thursday.

The other issue in Ohio is that the legislature is dominated by Republicans, who generally did not favor the establishment of a state-run exchange when the idea first came up, and “some of them don’t feel much has changed since then,” Stinziano said. Even if creating a state-run exchange in Ohio did pass the legislature, actually setting up the exchange would be yet another challenge. Predicting what the court will decide is impossible, he said, but taking some sort of measure might seem better than doing nothing at all. "I think we’ll be hurting ourselves if we’re not prepared," Stinziano said.