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Straine-On-Success — Health Care Law

Published on March 26, 2015

What The Supreme Court Challenge Means For The Health-Care Law by Stephanie Armour
Wall Street Journal – March 2, 2015
Arguments to begin Wednesday in case that could invalidate health-insurance
subsidies in up to 37 states

WAKE FOREST, N.C.—Kim Jones, a substitute teacher, worries she will lose her health insurance if the Supreme Court strikes down a core provision of the Affordable Care Act in her state.

Kim JonesLou Moshakos, the head of a restaurant company in nearby Raleigh, is also waiting for the court, but with a sense of optimism. A weakened law might remove the threat of fines if he doesn’t provide insurance for his waiters.

On Wednesday, the court will hear oral arguments on a challenge to subsidies received by millions of Americans, in as many as 37 states, who purchased health insurance through a federally run exchange. The suit represents one of the biggest threats to the Obama administration’s signature domestic achievement since it passed, rivaling a 2012 legal challenge the law survived.

Supporters of the health law say a win for the plaintiffs would leave millions more people uninsured by making their premiums unaffordable. Opponents say it would free many people and businesses from the threat of penalties for choosing to skip insurance, and would also prompt an exploration of health-care alternatives. A decision in the case, King v. Burwell, is expected around June.

The law has put down roots even in unfriendly territory such as North Carolina, where, despite opposition to the ACA from political leaders, almost 560,000 residents have signed up for coverage under it. Backers and opponents alike agree that a successful legal challenge could render the health law as written largely unworkable in many states by gutting central components. This could force the new Republican-controlled Congress and the White House back to the negotiating table to rework the law, even as it would send state lawmakers searching for solutions for newly uninsured residents.

More than 30 states didn’t set up one of the exchanges, or marketplaces, that the health law envisioned for purchasing insurance. That left their residents to shop on a digital exchange the federal government set up, HealthCare.gov.

The law said low-income buyers could get subsidies when purchasing on an exchange “established by the state.” The lawsuit, which was organized and funded by the Competitive Enterprise Institute, a conservative advocacy group, says that language excludes buyers who purchased through the federal exchange. The Obama administration says Congress intended the subsidies, which are in the form of tax credits, to be available everywhere.

In the law’s first year, an estimated 4.7 million people who shopped on the federal exchange qualified for tax-credit subsidies, according to the U.S. Department of Health and Human Services. This is expected to rise to more than seven million this year.

The enrollees in 2014 paid an average of just 24% of their premiums after the subsidies were applied, according to HealthPocket Inc., a firm that compares plans for consumers.

Just how many states would be affected by a win for the plaintiffs isn’t certain, because some states established their own exchanges but turned to HealthCare.gov after their technology faltered. North Carolina didn’t set up an insurance exchange. The state, which has a Republican governor and Republican-controlled legislature, also didn’t pursue another option the health law offered for getting more people insured: an expansion of the federal-state Medicaid program.

If subsidies in such states were struck down, an estimated 465,000 people in North Carolina in 2016 would lose subsidies, according to a projection by the Urban Institute, a liberal-leaning policy-research group. It estimates that North Carolina would see an increase of 407,000 uninsured people because they couldn’t afford coverage.

North Carolina Gov. Pat McCrory said recently that a ruling striking down subsidies in the state could put it in a precarious position. He said the president and Congress should work together in anticipation of such a possible decision.

Ms. Jones, the substitute teacher in Wake Forest, had no health insurance in 2013, when she was found to have a benign pituitary tumor. She bought insurance under the ACA and had surgery in August 2014.

Perched on a chair at her dining-room table, the 60-year-old rattled off drugs she takes, including medications related to her tumor and for high cholesterol.

Open Door Clinic

With limited working hours—she is a caretaker to her elderly mother—she earns about $12,000 a year, Ms. Jones said. She said she receives a subsidy of about $500 a month under the health law to help pay for her insurance, bought on the federal exchange. In 2014, she paid about $20 a month for coverage with an annual deductible of about $500.

Without the subsidy, “I wouldn’t be able to afford the ongoing care I need,” Ms. Jones said. “I’d become invisible again.”

Subsidies at Risk

Without Medicaid either, she would have to look elsewhere for care. One option is the Open Door Clinic, tucked off a busy thoroughfare in Raleigh. As one of more than 1,200 free and charitable clinics in the U.S., Open Door serves 1,600 patients with chronic health conditions, charging them a $20 administrative fee for each visit and providing prescription drugs without cost.

Peter Morris, a pediatrician, is a fixture at the clinic, where children on a recent afternoon sat cross-legged on the floor reading books as their parents waited. He is executive director of the Urban Ministries of Wake County, the operator of the clinic, which relies on doctors and nurses who almost all volunteer their time without pay.

The clinic saw a drop of about 300 patients when the ACA took effect, although new patients filled the gap, Dr. Morris said. If some patients lose their subsidies and come back, “we have some capacity to handle that, and will,” he said. “But there will be some challenges.”

Ms. Jones’s insurer, Blue Cross and Blue Shield of North Carolina, is one of three companies that sell plans to North Carolinians on the federal exchange. It gained more than 250,000 customers in the state through the exchange as of last May, the company said.

The enrollees include many older people with health problems, said Barbara Morales Burke, the company’s vice president of health policy and chief compliance officer. She predicted the patient pool would skew still more toward the older and less healthy if subsidies were lost. Health-policy analysts say that is because such people would try the hardest to find a way to continue affording health insurance. “Premium subsidies help to bring in a better mix,” Ms. Burke said.

Raj Bal, chief executive of Demystify Healthcare LLC, a consulting firm, confirmed that outlook. The insurance industry would “take a financial hit from sicker individuals staying and healthier people leaving, and from fewer members,” he said.

That could prompt insurance companies to raise premiums for all consumers in the affected states and possibly lead some insurers to stop participating, analysts say. Unsubsidized premiums for individuals would rise 47% in those states, according to a projection by the research firm Rand Corp.

Individual Mandate

The health law includes a requirement that almost all Americans obtain insurance or pay a penalty—the “individual mandate” that was upheld by the Supreme Court in 2012. Nationally, as many as six million people may owe the penalty for not having had insurance in 2014, based on information on tax filers provided by the federal government. There is no breakdown just for North Carolina.

Despite being upheld, the individual mandate could start to unravel in up to 37 states if they lost subsidies. The mandate has an exemption for anyone who can’t afford coverage, and many more people would be in that category absent subsidies. Blue Cross and Blue Shield of North Carolina said about 90% of those who bought insurance from it on the federal exchange qualified for subsidies.

“Individuals would be freed from the mandate” if the plaintiffs win in the current Supreme Court case challenging the subsidies, said Michael Cannon, director of health-policy studies at the libertarian Cato Institute. “That dwarfs the number who would lose coverage.” He said those who couldn’t afford coverage without a subsidy would likely be eligible for health coverage under catastrophic plans, which have lower premiums but protect only from very high medical bills.

The mandate for all to buy insurance appears to be unpopular in North Carolina. A survey taken a year ago by American Insights Inc., a Raleigh research firm that primarily focuses on faith and culture, found that half of North Carolina voters it polled said the rollout of the ACA had given them less confidence in government, while only 19% said more confidence.

“If the Supreme Court strikes down the subsidies, then in North Carolina, because it’s a federal exchange, that will do away with the ACA,” said Bob Rucho, a Republican state senator. “There are a lot of Republican options out there that haven’t really been heard. For the first time, we’ll get to hear the options.”

In Washington, three GOP lawmakers outlined an alternative plan in early February. The plan from Rep. Fred Upton of Michigan and Sens. Richard Burr of North Carolina and Orrin Hatch of Utah would keep parts of the ACA but scrap the requirement that everyone have insurance. It would include a tax credit linked to the consumer-price index for some lower-income people, plus block grants to help states pay for their Medicaid programs.

The Obama administration said last week it has no contingency plan if the Supreme Court invalidates subsidies for people who bought insurance through the federal marketplace.

The health law’s employer mandate would also be affected. The rule says businesses with 50 or more full-time workers must offer them affordable insurance or face penalties, which are being phased in this year and next. But the penalties are levied only if at least one of the business’s employees receives a subsidy. And no one in the affected states would, if the legal challenge to the law succeeded, making the employer mandate largely toothless in those states.

The rule calls for the University of North Carolina to offer health coverage to all student employees working at least 30 hours a week for three months or more. Providing this coverage, if all 3,900 elect it, may cost UNC about $5.5 million in 2015, said a spokeswoman for the school, Joni Worthington.

A court ruling for the plaintiffs would mean UNC might no longer face the risk of penalties if it chose not to extend this coverage. What steps the school would take in that case, Ms. Worthington was unable to say.

Mr. Moshakos in Raleigh is the president and owner of LM Restaurants Inc., the parent company of restaurants that employ about 2,500 people.

The company used to provide health insurance only to managers. But the ACA’s employer mandate required Mr. Moshakos in January to start offering coverage to all full-time waiters, waitresses, bartenders and other staff.

The company said it wouldn’t continue to provide the coverage if the subsidies—and thus the threat of a penalty—were struck down.

“How much it will cost us, I have no clue, but it’s money and it has an effect on us,” he said. “We have to cut expenses.”

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