From Health Plan Week

With Wait Nearly Over, Insurers Gauge Next Moves if Court Rejects ACA Subsidies

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By ,
June 15, 2015Volume 25Issue 20

A Supreme Court decision against the Obama administration striking down tax subsidies for enrollees on federally facilitated exchanges (FFEs) could result in HHS allowing for late-summer revisions to 2016 premium and benefit design proposals sent in by insurers. Speaking just weeks before the court’s expected late-June ruling on the King v. Burwell subsidies case, a former CMS administrator and industry consultants tell HPW that plans will be looking for guidance from the administration if the justices side with King, leaving the industry in chaos.

The plaintiffs in the case allege that federal tax subsidies are expressly for exchange enrollees on state-based marketplaces, since the letter of the Affordable Care Act (ACA) omits references to subsidies for FFEs. The administration’s stance is that the authors of the ACA forgot to add such a reference, but clearly intended all exchange enrollees to have access to subsidies should they qualify.

While insurers prepare for a yes or no vote, or some surprise mixed judgment, some states are taking action ahead of time. For example, Pennsylvania on June 2 became the first FFE state to reveal plans to transform into a state-based marketplace, where subsidies are not at issue in King v. Burwell. Pennsylvania Gov. Tom Wolf (D) said in a statement that a blueprint is in place to protect subsidies for some 350,000 Pennsylvanians in jeopardy of losing assistance. Delaware has also started preparations to drop its status as a federal-state hybrid exchange to become a purely state-based entity should the court’s majority find against the administration, according to media reports on June 3 quoting Rita Landgraf, the state’s heath and social services director.

ACA Subsidies Are on Firing Line

Health plans, however, don’t possess the power of a state to do much about the situation, except to appeal for immediate guidance on what comes next, according to Thomas Scully, former CMS administrator during the George W. Bush administration and current senior counsel for the law firm Alston & Bird LLP. He tells HPW that despite talk of Republican legislation to offer a Plan B if the court disallows FFE subsidies, there is no expectation for action on Capitol Hill to amount to much.

“There will be lots and lots of Republican bills to try and change the ACA and scale it back, and I can’t imagine the Democrats going along with it or the president going along with it,” Scully says.

He does foresee the court, if it decides against the administration, giving direction on how to define a state exchange and how it can be run. This will be especially important for the mostly “red” Republican states in the Deep South running from Texas to Florida, whose leaders will face a political conundrum. “I think by the end of the year every state outside of the Deep South will become a state exchange and most of them will hire CMS…to run their state exchange,” Scully continues.

Southern States May Be Real Battleground

In the Deep South, however, the strong opposition among governors and legislators to the Affordable Care Act (ACA) and state-based exchanges will be tough to maintain given that subsidies per capita are by far heaviest there. “Republicans say they want to shut it down and I think there will be a lot of unhappy people; 5 million lose subsidies. Whether you agree that they should have them or not it will still be a political problem,” he says. And like some Republicans who may be hoping in private for an Obama win in order to avoid such a mess, health plans in states refusing to transition to a state-run marketplace want the status quo to remain on subsidies. Scully says premiums will have to go up substantially in these states without subsidies and mass exits by insurers would likely be a result. “It doesn’t take a rocket scientist to figure out it will be very unpleasant in the South,” he adds.

In addition to the South, Christopher Koller, president of the Milbank Memorial Fund, a health care foundation based in New York City, tells HPW that FFE states that have expanded Medicaid are in the most challenging predicament. He mentions Arkansas, Indiana, Michigan and Ohio as examples, “because they [will] have a group of people not eligible for federal subsidies, but will have people making less money who have Medicaid. The pressure will be on the governor and legislature to think about what their options are. The individual market could be in jeopardy because low-risk people could pull out,” he says.

Christopher Condeluci, a principal at CC Law & Policy, says the notion that an FFE state could assign the feds to be its exchange provider may be trickier than it appears. “The leading idea — absent some sort of legislative ‘response’ from Congress — is for a federal exchange state to designate and HHS as its ‘exchange service provider.’ This way, the state can fit into the new designation that HHS has developed — a ‘federally-supported state-based exchange,’” he says. “Under this designation, HHS will recognize the exchange as one that is state-based, thereby allowing the premium subsidies to continue to flow.”

States Are a Wild Card

But his understanding is that when officials from various FFE states huddled in secret on this issue in early May in Chicago, the consensus was the shift would not be so easy. “Many state legislatures are hostile to this approach. But, let’s say for a moment that some federal exchange states successfully shift over to a ‘federally-supported state-based exchange.’ This new designation conjured up by HHS will no doubt be challenged in court — where the challengers will suggest that HHS does not have the authority to designate a state as a state-based exchange by simply using and HHS to perform all of its exchange functions,” Condeluci says. In the end, however, he says the administration may not care because by the time a new challenge works its way through the legal system it will be out of office.

But for health plans the here and now is about figuring out what to do about premiums and maintaining a risk pool should the lack of subsidies force exchange enrollees to drop, according to Anne Phelps, a principal and U.S. health care regulatory leader at Deloitte. She tells HPW that if the court removes FFE subsidies but does not grant a stay until the end of the calendar year like some suspect it would, then the tax credits could go away as soon as August. “These are month-by-month tax credits, based on an individual’s income,” Phelps says.

To ease the pain if this happens, she says, while the administration has no regulatory authority to restore the credits, it does have some levers to use. “Plans have until August to resubmit bids,” Phelps says, so the administration could allow for a thorough re-look at rates or even give more time for open enrollment. “Plans will look to the administration for any kind of relief in that sense to help maintain through the end of year.”

© 2015 by Atlantic Information Services, Inc. All Rights Reserved.

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