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Decision Weighs Heavy on Americans with Subsidies

The Supreme Court is deliberating on a case, King v. Burwell, which challenges the legality of the federal government subsidizing health insurance in the 37 states that did not set up their own health insurance exchanges.

This is a politically charged debate, both about whether the law is working, and what the real-world implications would be if subsidies are struck down in those 37 states. While it’s not my place to say whether the law is working, it is important to clarify what this Supreme Court decision is about, and who it affects.

A ruling against the government could result in over 6 million people losing subsidies that help pay for health insurance. This applies to people who obtain their insurance through exchanges, and would not affect those who get health insurance at work. Without subsidies, some of these people may be unable to afford insurance and could lose it entirely.

The 37 states in question did not set up their own health insurance exchanges by the 2014 deadline, which led the federal government to set up exchanges in those states. The language in the law, however, stipulates that subsidies be administered by state exchanges. The case in front of the Supreme Court, therefore, challenges the legality of providing subsidies through the federally-run exchanges, which, according to this interpretation, means that any state that allowed the federal government to step in and run their exchange could lose their subsidy program.

According to the most recent enrollment report from the Assistant Secretary for Planning and Evaluation of the Department of Health & Human Services, 9.6 million Americans have enrolled in health insurance plans for 2015 through exchanges, of which 7.2 million have insurance through federally-run exchanges. Of that 7.2 million, 87 percent, or 6.2 million Americans, receive subsidies, which they stand to lose if the Supreme Court rules against the administration.

The ruling will not have a direct effect on the 3.3 million people who receive their health insurance through a state exchange or who receive no subsidies at all. These shares are represented in the chart below, with the large red slice representing people most at risk of losing health insurance should the Supreme Court rule against the administration.

jules oneSource: Assistant Secretary for Planning and Evaluation, Department of Health & Human Services (HHS)

Overturning the subsidy provision would effectively split the U.S health care system into two separate parts; one-third of the U.S population living in the 13 states subsidized by taxpayers and the federal government, and two-thirds in the 37 states without access to subsidized health insurance. The effect of making federal exchange subsidies illegal would spread wider than the people losing financial assistance. It would also indirectly affect all people who obtain health insurance in the individual market in states with federal exchanges, irrespective of whether they currently receive the subsidy. The individual market is defined as insurance purchased directly from an insurance company or through a public or private health insurance exchanges.

. Many insurance companies are relying on higher enrollment from the exchanges mandated under the Affordable Care Act to keep premiums low for all their individual market enrollees. The ACA requires insurance companies to accept people with pre-existing conditions or with any illness. To mitigate the high cost of insuring people in poor health, insurance companies depend on a greater number of people purchasing insurance in the individual market. Young healthy people, who tend not to use much health care, are the most critical in supporting the cost of these chronically ill enrollees.

About 87 percent of Americans who signed up for insurance on a federal exchange are eligible for subsidies and a substantial portion—35 percent–of all federal exchange enrollees are under the age of 35. If the Supreme Court rules against the subsidies, the younger and healthier people who currently receive subsidies would be the most likely to forgo health insurance as their premiums would become much less affordable. As the younger and lower-risk enrollees drop off of the insurance rolls, insurance companies are likely to respond with higher premium rates for everyone. In those states with federally run exchanges, premiums would rise for most policies purchased in the individual market. This collapse of the individual market would likely be seen as a failure for the ACA legislation, as addressing problems faced by people who obtained health insurance in the individual market (as opposed to those who obtained insurance via their employers) was an important goal of the ACA.

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