Officials in several Republican states that balked at participating in President Obama’s health-care initiative are now revisiting the issue amid mounting panic over a possible Supreme Court decision that would revoke federal insurance subsidies for millions of Americans.
The discussions taking place in state capitals around the country are part of a flurry of planning and lobbying by officials, insurance and hospital executives, and health-care advocates to blunt the possible impact of a court ruling.
The justices hear arguments about the matter next week. If the court sides with the plaintiffs, who argue that subsidies are not allowed in the 34 states that opted against setting up their own insurance marketplaces, the ruling could spark an immediate crisis. People could see their insurance bills skyrocket and be forced to abruptly cancel their coverage.
At least six states where Republican leaders had previously refused to set up state marketplaces under the Affordable Care Act are now considering what steps they might take to preserve the subsidies being paid to their residents.
Efforts to hold on to the subsidies are under consideration even in South Carolina, which supported the challenge now before the Supreme Court. Gov. Nikki Haley (R) said in an interview that South Carolina may consider setting up a marketplace, though it is unclear how such a proposal would fare in the staunchly conservative state.
“We’re going to start in this next week working on some things statewide,” said Haley, who says she still opposes setting up an exchange.
Nine states now have bills under consideration to set up their own marketplaces, according to the National Conference of State Legislatures, although in some cases these efforts began before the court accepted the subsidies case.
Lobbyists for insurers, hospitals and consumer groups are alerting legislators in some states to what they call the potentially disastrous consequences if the subsidies are suddenly revoked. In Pennsylvania, for example, hospitals and insurers are trying to coax the Republican-led legislature to back a state marketplace if immediate action is needed to preserve the subsidies.
But there are enormous logistical and financial barriers to setting up a marketplace this late in the game, experts say. The states that already have their own marketplaces took several years to set up the Web sites, contract with insurance companies and establish call centers. They did so with the help of hundreds of millions of dollars in federal grants that are no longer available.
Lobbying is also taking place in Congress. Aetna’s chief executive, Mark T. Bertolini, for instance, is in regular contact with Senate Majority Leader Mitch McConnell (R-Ky.) on this matter, a company executive said. Aetna participates in insurance exchanges in 17 states, only one of which set up its own marketplace.
Insurers are gaming out who is going to drop coverage, and how quickly, if the subsidies dry up. The companies have begun devising strategies to hold on to these customers. Insurers that did major hiring to handle the new business created by the marketplaces are figuring out whether layoffs may be needed.
About 8.8 million Americans this year have signed up for insurance through HealthCare.gov, the enrollment Web site serving nearly three dozen states that did not set up their own marketplaces. Of those who signed up, about 87 percent qualified for subsidies, according to administration data. The subsidies were key to making coverage affordable for the vast majority of these people, cutting monthly premiums on average by nearly three-quarters, according to administration figures.
The health-care law provides subsidies to low- and middle-income families who can’t get coverage through their job, Medicaid or Medicare. To qualify, they must earn between $11,500 and $46,680 a year as individuals, or between $25,850 and $95,400 for a family of four. The subsidies are paid directly to insurers, who then apply the discount to their customers’ monthly premiums.
Plaintiffs in the case before the court contend that the law as written allows subsidies to go only to people who buy coverage in marketplaces “established by the state.” The Obama administration has countered that it is clear Congress meant for the subsidies to go to all marketplaces.
If the justices strike down the subsidies for federal marketplace states, those payments could halt as quickly as 25 days later, although the court or Congress could allow for a longer transition period.
A court decision invalidating the subsidies could undermine the market for individual insurance, said Larry Levitt, an insurance industry expert at the Kaiser Family Foundation. Rather than risk facing financial catastrophe, insurers are likely to pull out of the federal marketplace, dismantling a central piece of the health law and leaving millions without the new coverage they received under it, he said.
“I don’t think any insurer would want to stay in the market under those circumstances,” Levitt said. “It would be too unstable.”
But some conservative scholars have suggested that the sky will not fall. The potential consequences are so great that it will put “hydraulic pressure” on the states to act, said Thomas P. Miller, a fellow at the free-market American Enterprise Institute, who predicted that as many as 10 states would set up their own marketplaces. Congress would also be forced to step in, and Obama could be compelled to work with Republicans on a solution, some experts have said.
Republicans in Congress have sought to show they are trying to devise solutions that could salvage the assistance in some form. Rep. Paul Ryan (R-Wis.), chairman of the powerful House Ways and Means Committee, has said it is a top priority for GOP leaders to come up with a plan if the subsidies are gutted, although he declined to provide specifics. A trio of senior Republican lawmakers this month outlined their principles for a health-care plan. But five years after the health law’s enactment, the party remains divided on how to replace Obamacare.
Health and Human Services Secretary Sylvia Mathews Burwell has said publicly that the federal government does not have a backup plan.
State governments are confronting the prospect of a public backlash if insurance prices skyrocket.
“Now that we have so many Ohioans enrolled, this has a significant impact on their care and what direction we’re going as a state,” said Michael Stinziano, a Democratic legislator who is co-sponsoring a bill in Ohio to set up a state exchange.
Among the other Republican-led states where officials are now looking at options for engaging with the ACA health-care program are Maine, South Dakota and Utah, as well as South Carolina. Pennsylvania’s newly minted Gov. Tom Wolf (D) has said he supports going forward with a state exchange, a shift from the position of his Republican predecessor.
Opposition to the health law remains fierce in some states. This week, a Tennessee legislator introduced a bill barring the state from setting up an exchange. In Indiana, Gov. Mike Pence (R) has said he has ruled out a state-based marketplace regardless of what the Supreme Court does and urged Congress to craft a solution that gives states more flexibility.
Conservative activists also are ramping up their efforts to stiffen the spines of states that have rejected the health-care law.
“We’re prepared for being able to educate state policymakers on the risks and costs of setting up a state exchange should they revisit this after the court decision,” said Tarren Bragdon, president of the Foundation for Government Accountability, a free-market policy organization that has already begun talking to lawmakers in eight states.
On the other side, politically powerful hospitals and insurers in states such as Pennsylvania are pressing lawmakers to establish state-based exchanges rather than risk the consequences if the subsidies vanish.
So far, these lobbyists have faced a challenge in persuading Pennsylvania’s Republican-controlled legislature. But a court decision against the subsidies “could change the dynamic” in the Pennsylvania legislature, said James Redmond, a former hospital association executive and senior adviser to the Health Policy Institute of Pittsburgh. “The big question is, ‘Where will the money come from?’ ”
Hospitals are counting on the revenue generated under Obamacare from newly insured patients who come through their doors. In the years before the health-care law was enacted, many hospitals saw their costs soar for providing care to patients without adequate insurance.
In Pennsylvania, for instance, the cost to hospitals of providing care to uninsured and underinsured patients increased from just over $670 million in 2007 to over $1 billion in 2012, an increase of about 50 percent, said Paula Bussard, chief strategy officer for the Hospital and Healthsystem Association of Pennsylvania. If the subsidies disappear, many people could lose their coverage and hospitals could see their uncompensated costs spike, she said.
The association’s representatives have been warning legislators about this possibility in face-to-face meetings, Bussard said.
Insurers may be in an even more difficult position. Open enrollment for 2015 just finished. Insurers will be completing their calculations for next year’s premiums this spring and submitting them to state insurance departments before knowing the outcome of the Supreme Court decision.
Because of this uncertainty, the Blue Cross Blue Shield Association, the national trade association, is working on “deep scenario analysis” to model what would happen if the subsidies are invalidated, said Brian Caveney, vice president and medical director of Blue Cross Blue Shield of North Carolina.
The insurer has hired thousands of people to staff customer service call centers, process claims and provide care management. Without sufficient revenue, the insurer would have to cut those jobs, he said.
At the same time, a court ruling striking down the payments could inundate insurers with queries and concerns from panicked customers.
“If all of a sudden consumers realize they are losing their health insurance in the middle of the year, how on earth are you supposed to explain the implications to the policyholder on very short notice?” said Russell Davis, who consults for health plans at the Advisory Board Company.
Reid Wilson and Niraj Chokshi contributed to this report.