The Obama Administration Should Disclose Legal Risks of Losing Coverage to Obamacare Applicants
(A version of this Health Alert appeared in The Hill.) An increasing number of businesses are figuring out that continuing to offer health benefits puts them at a competitive disadvantage versus firms which socialize the costs of health care by shifting their employees onto Obamacare exchanges. However, these employers are handing their employees a risk that they likely do not appreciate. If they are operating in one of 36 states where Obamacare might come to a screeching halt in the second half of 2015, their employees could lose their subsidized Obamacare plans as early as July. This is what will happen after a Supreme Court decision in favor of the petitioner in the Obamacare case of King v. Burwell. This case addresses the question of whether the Administration can pay Obamacare subsidies to insurers in states that did not establish their own Obamacare exchanges. The Court will hear oral arguments on March 4, and is expected to announce its decision in June or July. If the Supreme Court finds in favor of King, tax credits to health insurers via
the federally operated exchanges in 36 states will likely stop within a few weeks. As a result, enrollees will be exposed to the true premiums of their policies for the first time. Many will not be able to afford them. Enrollees are likely unaware of this, because the exchanges were designed to camouflage the subsidies. The Obama Administration likes to pretend that it has actually lowered the cost of health insurance in the individual market. So, the exchanges are designed only to present to applicants only the premiums net of subsidies. According to a recent report published by the Administration, the average Bronze plan for a single person in 2015 is $265 per month. Silver, the most popular plan, has an average premium of $336 per month. Platinum, the most expensive, costs $439. However, the Administration also notes that 8 of 10 returning enrollees will be able to get a plan for less than $100, regardless of the metal level they selected in 2014 (emphasis in the original). According to an example in the report, a 27-year old single woman earning a little over $25,000 would pay a maximum of $148 for the second lowest cost Silver plan. However, the actual premium of that plan is $222. So, if the Supreme Court knocks out the subsidy, her premium will jump by $74, an increase of 50 percent! Because the subsidy is the same for less expensive plans, the people who were the best shoppers will suffer the worst shock. Suppose, for example, the woman had bought the least expensive Silver plan for a premium of $99 net of subsidy. In that case her premium will jump by three quarters, to $173. If she had bought a Bronze plan for $74 net of subsidy, her premium would double to $148. According to recent reports by the RAND Corporation and the Urban Institute, millions will drop coverage. Even if our woman accepts this hike, she is unlikely to be happy with the employer who told her months earlier that she would save money by enrolling in Obamacare instead of the company’s now cancelled health plan. Further, even if she could find the extra $74, she will be dealing with a very frustrated health plan. The health plans know that, after such a sticker shock, healthy patients will stop paying premiums, and the sickest will stay with the plan. The plans will rush for the exits as quickly as they can. The Obama Administration is neglecting to inform people of this risk. A privately owned corporation is obliged to disclose the risks of pending litigation to interested parties. Apparently, this constraint does not apply to the federal government. Indeed, Team Obama is cheering the fact that millions of people are bailing into Obamacare exchanges, putting their health coverage at risk, and pretending that everything is going swimmingly. This needs to change. The Administration needs to disclose fairly and fully on the exchange website the exact nature of the legal risk that people are taking when they apply for Obamacare coverage in one of the 36 states. And it needs to insure that “navigators” and others who are signing people up do so only after ensuring that applicants have given their informed consent to this risk.
It is a mystery whythe Obama Administration has not broadcast this risk, blaming it on the foes of Obamacare whose legal briefs call for this calamity.
Thank you. We will see how folks respond to this “calamity”, if it comes to pass. I suppose because it is the Obama Administration’s “calamity” because President Obama signed the bill, he does now want people to know that he has wrought this upon them.
I would bet that the media will would use as a peg the SCOTUS decision and blame the calamity on that politically divided court and Republicans who are behind this suit. After all, Obama could say: Yes, I signed the bill, and for a while you were the beneficiaries of that bill, until the Republicans took it away from you.
But we’ll see.
Plus, President Obama will have a one-page amendment to “fix” the ACA if King v. Burwell goes against him. He can challenge Congress to pass that while Congress is still searching for its replacement. How long will Congress stand up to that?
Fortunately, we at NCPA are working out a proposal that should satisfy both sides.
I am not sure I see such great risk here.
Take the 27 year old woman, whose premium for a silver plan would go from $148 to $222 if the subsidies went away.
Not any fun, I grant you, but if this woman had been buying individual coverage with maternity benefits before the ACA, her premium would have been over $300 a month ( I work in the insurance industry.) So $222 is not so bad.
And if this woman was in a group plan that had employees paying part of the premium, her share might have been $250 a month for decent coverage.
So again $222 is not so bad.
It is hard to believe that Republicans would sit on their hands totally if the King decision shot down federal subsidies. This would guarantee them a massive defeat in the 2016 elections. I also wonder if the hospitals and the AMA would put great pressure to keep subsidies going. I even wonder if there would be civil disobedience of some kind in state health departments.
On the other hand……when the TennCare program in Tennessee fell apart in about 2005, I think that 200,000 people lost their health coverage overnite.
No one was impeached, I do not think there was even a special session of the legislature.
I work in an insurance agency. We enroll people in the ACA every day. Those who get subsidies are a very amorphous group. Laid off workers,part timers, failed entrepreneurs, deserted wives….not a political pressure group at all.
Plus, the individual and employer mandate would be struck down in the states that lose the tax credits. Maybe Republican politicians in those states would not be unhappy with that trade off.
According to an article in a recent edition of Health Affairs magazine, prior to the passage of the ACA, 37% of adult males under age 35 were uninsured as were 27% of females in that age group. Though precise data is not available, many of these people were uninsured by choice because they were healthy, didn’t think they needed health insurance and didn’t want to spend what it would cost to acquire it.
If the subsidies go away in the states with federal exchanges, lots of these people are likely to return to the ranks of the uninsured rather than pay the full premium without subsidies. Those left in the pool will be the sickest and adverse selection will either drive up premiums next year or carriers will exit some or all of these markets entirely.
Yes, but those young and healthy folks who bail out will hardly be seething with a desire against those who cost them their coverage. It will not be important to them.
As Bob mentioned, thy hypothetical woman would be paying as much if not more on the non-Obamacare open market . But I think the real difference is when she faces a $5,000 (or $10,000 if she has a family) deductible according to a HealthPocket study of Bronze plans. It seems that the way in which the Obamacare preimiums can be low is that they are back ended with astronomical deductibles. It’s not as easy for the media to report woes caused by a high deductible as compared to a high monthly premium. That will cause people to forego necessary treatment or medication because the out of pocket deductibles are more costly than not having coverage at all.
Obamacare is a perversely incentivized program that may end up having more negative societal effects than if it never passed at all.