Obamacare Scare: Court's Rule May Lead to Higher Price in States with Federal Insurance Exchange

NEW YORK (MainStreet) — The conflicting rulings from the two federal appeals courts yesterday left open the question of whether health insurance premiums will continue to be subsidized and if consumers will face higher prices.

While the Fourth Circuit Court bolstered the White House's position that subsidies may be offered in states that have federal exchanges, the D.C. court took an opposing position, stating that subsidies may not be offered to individuals in states with federal exchanges, said Shawn Pynes, principal and head of the employee benefits division of Barney & Barney, a San Diego-based business insurance and employee benefits program which works primarily with small to mid-tier companies.

"With 36 states that have federally-run exchanges, these different and opposing decisions will surely create more conflict and confusion over subsidies, in turn affecting the future of the Affordable Care Act," he said.

The final decision on subsidies in the federal exchange will impact employers in those states because penalties are assessed to an employer based upon whether an employee receives a subsidy in an exchange, Pynes said.

The D.C. decision may still be reviewed by the full D.C. Circuit Appellate Court of seven judges, but the Supreme Court will most likely decide whether subsidies may be offered in federally-run exchanges, he said.

The two rulings will not have an immediate impact on the 4.5 million people receiving subsidies and will continue to receive them through the first half of 2015 until the rulings are appealed, said Dean Rosen, CEO of Breakaway Policy Strategies, a D.C. health consulting firm and a WebMD healthcare reform analyst.

Consumers should still plan on signing up for health insurance in November even if they need a subsidy, he said.

"In the median term, there will be enormous uncertainty," Rosen said. "Nine out of 10 people who live in the states where the federal government is operating the subsidies will have a difficult time buying health insurance without the tax subsidy. If the subsidies go away, the people who rely on them will have a hard time affording the insurance."

The lack of subsidies would be a "significant blow to the millions of people who have relied on them to make their insurance more affordable," he said.

Despite today's rulings, the law has not changed and the plans and price consumers paid for their health insurance remains the same, said Michael Mahoney, senior vice president of consumer marketing at GoHealth Insurance, a Chicago-based online exchange for health insurance.

Consumers should be aware that the marketplaces are still allowing subsidies to be applied to premiums and they can currently still shop for and enroll in qualified health plans in all 50 states, including the 36 states where the federal government administers the exchange, he said.

"As a federally approved marketplace, GoHealthInsurance.com is operating as usual," Mahoney said. "Consumers who choose to enroll on GoHealthInsurance.com not only have access to federal subsidies but licensed advisors who can help people determine their needs and recommend plan options along the way."

The potential long-term impact of this issue is significant because it could change how much people pay for individual or family health coverage, he said. The tax subsidies were established to make health coverage more affordable.

On the federal marketplace, the average monthly premium for an individual before tax credits was $346, while the average monthly premium after tax credits was $82. "That's more than $250 in savings that people can use to buy groceries, pay bills or put fuel in their tanks," Mahoney said.

The uncertainty of the ruling is a concern for part-time and full-time employees, retirees and family members of employees who qualify for subsidies and for employers that were relying on the public exchanges in the affected states for coverage for their employees, said Steve Wojcik, vice president of public policy at the National Business Group on Health, an association of nearly 400 large U.S employers. Consumers could see access to health care limited and costs increase, he said.

This issue has "broad repercussions," even beyond the sense of equity to the millions of low-income Americans who may now be unable to afford insurance based solely on where they live, said Lawrence Vernaglia, partner at Foley & Lardner, a Milwaukee law firm.

It also jeopardizes the ability to incentivize employers to provide coverage and poses a threat to one of the keys of universal coverage – assuring a broad-base of covered lives rather than the "adverse selection" of people purchasing insurance only when they are sick, he said.

Taking away the subsidies is akin to "pulling the rug from underneath the American people," said Dr. Larry Kawa of Kawa Orthodontics in Boca Raton, Fl. who has filed his own lawsuit trying to enforce the employer mandate which is currently in federal court.

"People bought into Obamacare on the premise that they would be subsidized by the federal government," he said. "If you take away that subsidy the American people will be crushed.

While the reality is that it may take another year for the cases to be appealed, Kawa believes it is "most likely the subsidies will be taken away from people who have purchased individual health insurance from the federal exchanges."

"People should be saving money because health insurance is no longer a choice, it is an obligation you have to the federal government and whether you like it or not, you will have to pay the premium," he said.

The decision is definitely a defeat to the administration, said Timothy Todd, an assistant professor of law at the Liberty University School of Law in Lynchburg, Virg. The administration has two options and can seek an "en banc" hearing, which is when the court as a whole will hear the case, as opposed to just a panel of three judges, he said.

The second option is to file a petition for a writ of certiorari at the Supreme Court, but generally, the Supreme Court waits to have a couple cases on the issue and then seeks to resolve a split or disagreement, Todd said.

"Just a few hours after the DC Circuit issued its opinion, however, the Fourth Circuit issued an opinion coming to the opposite conclusion," he said. "There is now a circuit split (assuming the administration bypasses the en banc process). With the circuit split, I'd say the odds are good that we will see another ACA showdown at the Supreme Court, this time about the subsidies."

If the DC Circuit decision stands, it will be a "devastating blow" to the ACA, Todd said.

"A central aspect of the ACA was the federal subsidies to entice the millions of people to sign up, which is supposed to make the law financially feasible. Without these federal subsidies, people in the roughly 36 states that have not yet instituted a state exchange, will have to pay full price and would therefore be less likely to sign up, everything else being equal."

The Obama administration has a "good shot of convincing the full court that the panel was wrong," said Dominic Perella, a partner at Hogan Lovells, the Washington, D.C.-based law firm.

- Written by Ellen Chang for MainStreet

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