Without the subsidies, the situation would quickly become pretty chaotic for insurers, who've largely benefited from the law so far. Most of the uninsured would no longer be subject to Obamacare's individual mandate requiring people to have health insurance because they wouldn't then have access to "affordable" coverage, as the Affordable Care Act defines affordability. But all of the law's other features that increase the cost of health insurance, such as guaranteed coverage regardless of preexisting conditions, would remain in place. The history of similar state-level health reform efforts that enacted these consumer protections without the mandate and financial assistance shows health insurance rates skyrocketed and healthier people dropped out of the insurance markets.
The timing of the Supreme Court decision could make a tough situation for insurers selling on the ACA exchanges even tougher. They're going to be filing 2016 rates over the next few weeks and months, before the Supreme Court is expected to issue its decision in late June. If the subsidies are struck, it's expected that healthier and low-income people would be the first to drop coverage — and quickly — after their monthly premiums increased on average by nearly 75 percent. That would then drastically alter the insurers' assumptions about who would sign up for 2016 health plans — they'd have a costlier population to cover, but the 2016 rates would already be locked in.
Neither Republicans nor Democrats have offered much hope that Washington could come up with a quick and workable fix if the subsidies are suddenly stripped from millions of people. The Obama administration — which doesn't want to give the Supreme Court any reason to think that an adverse ruling wouldn't cause chaos — says there's nothing it could do administratively.
Republicans, on the other hand, want to show the court that a ruling against the Obama administration would not be disruptive. A trio of senior Republican senators wrote in a Washington Post op-ed Sunday that they had a plan to offer temporary financial assistance to those who would lose the subsidies. But they didn't provide key details -- such as how long they'd provide the aid, and what it would be worth -- and their offices haven't said when they might release more details. It's also questionable how much support there would be for such a measure among Republican lawmakers.
Actuaries, who work for the insurers, are pushing for the Obama administration to let insurers to change their 2016 rates this summer if the subsidies are invalidated in the federal exchange states. They've also suggested allowing insurers to now propose two sets of rates — one if the federal subsidies survive, and another if they don't. "Otherwise, insurer solvency could be threatened," a professional society representing actuaries recently wrote to Health and Human Services Secretary Sylvia Mathews Burwell.
It might be easier for insurers to drop out of these exchanges entirely. The ACA contains a provision that would discourage this behavior, locking out insurers from the exchanges for five years if they leave the marketplace. However, the threat of losing the exchange business might not be enough to keep insurers in the market if there's no immediate fix on the horizon, said Larry Levitt of the Kaiser Family Foundation.
"A lot of it will hinge on insurers’ perceptions of whether a fix is coming and when," Levitt said. "They would immediately start losing money, as healthy people drop out and sick people stay in."
The most obvious solution, and the one insurers are lobbying for, would be for states to set up their own exchanges, since those subsidies aren't being threatened in the lawsuit, King v. Burwell. But there are huge political and logistical challenges to making that happen.
Jesse Thomas, chief executive of a start-up health insurer in Ohio that received $130 million in federal loans, said his group is working to build support for a bill establishing a state-run exchange if the federal subsidies are struck. Thomas, who runs InHealth Mutual, also said he's thinking of how to further expand the business into the small group market if the Supreme Court rules against the government. Thomas estimates that about half of the 22,000 people his company enrolled in 2015 health plans are in Ohio's exchange.
"We've pivoted before," said Thomas of InHealth Mutual, referring to the Obama administration's 2013 decision to allow people to stay longer in their existing health plans. "We'll pivot this time, and we'll get a broader spread of our risk."
Joel Ario, who previously ran the HHS office overseeing exchanges, said he would expect the battle over state-run exchanges to mirror the Medicaid expansion. Some Republican states would establish an exchange, while others would refuse. The Obamacare divide among the states would grow even deeper.
"It would be pretty ugly and divisive for the country," Ario said.