How a court ruling could create health-care chaos

Editor's Note: This piece was written prior to today's decision to uphold subsidies.

Barbara Butler takes home $250 a week for driving a school bus with blind children to a Catholic day school part time. Her health insurance premiums are $517 a month. She pays 76 cents, and Washington picks up the rest.

The Supreme Court is expected to rule within a week on whether that subsidy, a key part of President Obama's health-care law, is legal in 34 states. If it decides not, then the West Philadelphia resident's premiums would swell to half her income.

"Fortunately for me, I'm pretty healthy," Butler said. So she would go without coverage.

Insurance experts and health-policy analysts say that simple risk-benefit calculation, made by millions of consumers, would cause chaos as a domino effect moves from patients to insurers to hospitals and physicians, encompassing far more than even the eight to 10 million people projected to quit coverage.

"Everything is interconnected," said Ezekiel Emanuel, medical ethics and health policy chair at the University of Pennsylvania and one of the architects of the Affordable Care Act. "Everything was interconnected before."

The law provided for insurance exchanges, or marketplaces, where eligible consumers could purchase coverage subsidized by income tax credits. The question before the court is whether the law's wording limits those federal subsidies to exchanges "established by the state," as the plaintiffs contend.

Pennsylvania, New Jersey, and Delaware use exchanges set up by the federal government. Between them, more than a half-million people could lose the subsidies that make their insurance more affordable.

Pennsylvania and Delaware last week won conditional approval from the Obama administration to move forward with state-based exchanges, making it more likely that residents would be able to keep their subsidies.

Those exchanges are far from a done deal. Gov. Wolf will likely need agreement from the Republican-controlled legislature. (New Jersey's Democratic-controlled legislature has twice sent a state exchange bill to Gov. Christie, but he hasn't agreed.)

Getting the exchanges up and running by Nov. 1, the start of the next open-enrollment period, will be a challenge.

And that assumes that a Supreme Court ruling against the administration doesn't take effect before then. Without a stay, it would be earlier.

"That is one of the unknowns," said Norris Benns Jr., a vice president at the Delaware Valley Healthcare Council, part of the Pennsylvania hospital association.

Cutting off premium subsidies would mean a near-doubling, on average, of what consumers who had them would owe monthly in Pennsylvania, New Jersey, and Delaware. Most would be unable to pay.

Raymond Castro, an analyst for New Jersey Policy Perspective, recalled what happened five years ago when state officials, to save money, ended an optional Medicaid program for legal immigrants.

"As soon as they did that, they got calls from hospitals saying: 'This person is in the middle of treatment. If this person doesn't get a heart transplant, he will die,' " Castro said. The state ended up reimbursing hospitals for a portion of cases, he said.

As the health-care community anxiously awaits a court ruling, however, the immediate consequences are seen as a small crisis compared with the potential for disaster next year.

Insurance sold on the individual market used to vary widely in quality, price, and availability. Some plans didn't cover hospitalization. Preexisting conditions meant sky-high rates, if coverage could be found at all.

The law set minimum benefits. It also banned discrimination based on preexisting conditions - a popular provision that most opponents say they would keep.

People with medical conditions have more reason to buy insurance and are more expensive to cover. So the "individual mandate" was added to ensure there would be enough younger and healthier people to spread out the costs.

And since some would be unable to afford the mandatory coverage, the law provided premium subsidies and other assistance. About 85 percent of policies bought through the exchange this year qualified for subsidies, averaging $272 a month.

Subsidies alone are before the court. More than 6.3 million people currently receive them in the 34 states. Without them, only those who must have coverage would keep it. Insurers would raise premiums for everyone on the individual market - on and off the exchange - by an average of 35 to 47 percent, according to two published analyses.

"Then another group of people drop out. You just have an escalating crisis and shrinking participation in the marketplace," said Joel Ario, a managing director at Manatt Health Solutions who was Obama's first director of insurance exchanges.

As rates keep rising, the government would be forced to exempt people from penalties intended to enforce the individual mandate. Without that, the nongroup market would shrink 86 percent in less than a year, an Urban Institute analysis projected.

This is more or less what happened when New Jersey banned discrimination based on preexisting conditions and other factors in the individual and small group markets in the 1990s - a mini-version of Obamacare minus subsidies and mandate.

"Over time the market went into a death spiral because as the costs of health care started ballooning, the premiums kept going up and people couldn't afford the increases," said Linda Schwimmer, a former insurance executive and regulator who is now vice president of the New Jersey Health Care Quality Institute. The state eventually created a category of bare-bones policies that were still available to all but could be sold more cheaply.

On a national level, analysts predict that some insurers would pull out of markets. Even in the short term, projected losses throughout the health-care system would be staggering - $6 billion lower revenue for hospitals alone, including $367 million in New Jersey and $213 million in Pennsylvania.

That money would have been paid by insurers. Many of their patients would still end up hospitalized, but with no means to pay. Hospitals already get less federal help to cover the uninsured, part of the deal making, in exchange for expected revenue increases from paying patients, that led to the law.

Community hospitals would be hit hard, academic medical centers even more. Health centers have expanded to accommodate the newly insured, who could be the newly uninsured.

Nearly everyone agrees that a court decision against subsidies would be intolerable. Republicans who support the lawsuit fear a backlash if it wins.

"It is one thing to oppose expanding coverage by creating a new entitlement," said Bob Doherty, a senior vice president for the American College of Physicians, "and it is another thing to see substantial numbers of people in your state who have insurance lose their coverage."

Few see an easy solution from Washington that keeps the system in balance. Pennsylvania and Delaware have made important moves toward state-based exchanges that potentially would be unaffected by a ruling. But most state capitals are paralyzed by the politics.

"I'm just glad I'm not in one of them," said Pennsylvania Insurance Commissioner Teresa Miller.

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The Affordable Care Act seeks to make health insurance affordable in two ways. Both have ended up at the Supreme Court.

Medicaid expansion

The law required states to expand Medicaid - largely free insurance previously limited to certain groups, such as pregnant women - to households with incomes up to 138 percent of the poverty level. That is $16,000 for one this year, $33,000 for four.

The court upheld the overall constitutionality of the law in 2012. But it said the federal government could not require states to expand Medicaid.

The states of Delaware and New Jersey expanded Medicaid on Jan. 1, 2014. In Pennsylvania, Gov. Tom Corbett implemented an alternative version one year later. Newly elected Gov. Wolf is transitioning it to the expansion envisioned in the law.

Subsidies on the exchange

Federal tax credits are used to subsidize premiums for private insurance purchased on an exchange, or insurance marketplace. They are based on a sliding scale, up to 400 percent of poverty ($47,000 for one, $97,000 for four for enrollment starting Nov. 1).

The court will decide within days whether the subsidies are available to residents of states that rely on a federal exchange rather than their own.

The states of Pennsylvania, New Jersey, and Delaware are among the 34 that use the federal exchange. Pennsylvania and Delaware last week won conditional approval to set up their own.

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215-854-2617@DonSapatkin