The court will decide by June whether the the Affordable Care Act, as (poorly) written, bars the federal government from helping people buy health insurance if they live in one of the 34 states that haven’t created ACA insurance marketplaces. Federal subsidies are critical, because they underlie one of the basic deals the law struck in order to expand coverage: Everyone who doesn’t get insurance from their employer or directly from a government program such as Medicaid must buy individual insurance — but the federal government will help you buy it if you can’t afford it.
Urban found that if the Supreme Court ruled against the Obama administration, it would force the federal government to withdraw subsidies worth $28.8 billion from 9.3 million people in 34 states in 2016. Because individual insurance plans would be significantly less affordable to many, healthier people would drop coverage. With sicker people left in the individual market, premiums would have to rise to cover their costs. Urban figures that this would raise individual market premiums by 35 percent. The number of uninsured people in those 34 states would rapidly spike by 8.2 million people, a 44 percent increase from the number of people who would be uninsured in these states if the court left the policy alone. And many people would end up paying a lot out-of-pocket for worse coverage, with possibly very high deductibles on top of high premiums.
In that circumstance, the federal government might exempt people from the health insurance mandate in affected states. This would force premiums up by 72 percent rather than 35 percent, and rates of coverage would plummet further. The effect would be a “death spiral” in the markets serving individual health insurance buyers as the healthy withdraw and only sick — and expensive — customers stay in.
States could avoid this fate by setting up their own marketplaces into which federal subsidies could legally flow. But they would have to move to do so immediately, and they wouldn’t be able to get federal grants to help create new marketplaces, which were only available in an earlier stage of the law’s phase-in. In many red states, there wouldn’t be political will to repair the damage.
The court can’t base its ruling merely on the possible effects. But the Urban analysis gives a sense of the stakes. It’s astonishing that the coalition challenging the government would welcome such an outcome, creating a policy fiasco where they only imagined one to be before.
The scenario Urban describes also suggests that the law’s authors did not intend for federal subsidies to be narrowly available, which is somehow a major point of contention in the court case. The system they created is neither fair nor functional unless subsidies are widely accessible. “The drafters of the ACA,” Washington and Lee Law Professor Timothy Jost wrote last July, didn’t want to plant “a secret bomb in the heart of the statute.”
Though they have plenty of legal reasons to avoid it, a majority of justices might still rule that lawmakers’ language compels a negative result, detonating the bomb instead of defusing it. But no one should pretend this is how 2010’s Democratic Congress wanted its coverage-expansion policy to work.
UPDATE, 4:50 p.m.: Minor edits made above for clarity.