On November 7th, the U.S. Supreme Court agreed to hear the case King v. Burwell,which is a case whether the insurance subsidies through the Patient Protection and Affordable Care Act (ACA) (Obamacare) are illegal in 36 states namely because, as it’s being argued, the law only effects those states that set up their own insurance exchanges, and not ones that used Federal Exchanges.
Keep in mind the entire law won’t be struck down, like the Supreme Court could have done in 2012, but only the part law that governs the use of Federal insurance subsides. Here are some realistic consequences if that subsidy is stripped from the law.
1. Subsides Will Be Gone
There were 36 states that set up Federal insurance exchanges. Americans in those 36 states would lose subsidies if they bought healthcare insurance through the Federal Exchange. When those Americans lose the subsidies, it will be much more expensive for them to buy insurance, and thus potentially millions of Americans will no longer be able to afford to purchase insurance and thus lose insurance coverage.
2. The ‘Individual Mandate’ Would Apply to Less People
One of the bedrocks of the ACA is that it required people to buy insurance. This is called the ‘individual mandate.’ However, there are exemptions to the individual mandate. One of the exemptions is that if no affordable insurance option is available, which the law has defined as as if the household insurance costs more than 8 percent of the household income, then the person or household is not required to buy health insurance. With less subsidies, insurance costs will cost the household more money, putting insurance over the 8% as a total household cost. This means more people will be exempted to buy insurance. When less people buy insurance, especially young and healthy people, the insurance markets will also become turbulent.
3. The ‘Employer Mandate’ Will No Longer Apply in 36 States
According the current law, larger business employers are mandated to buy insurance for their employees, or pay penalties. This penalty will be triggered if one or more employee buys insurance using the Federal government insurance subsidies. If the U.S. Supreme Court strikes the subsidies, this penalty does not apply in the 36 states where there were there were Federal Exchanges.
Companies may attempt to take advantage of this fact and try to move to states that have Federal Exchanges to circumvent the employer mandate and save money. While this is the least likely consequence, it poses interesting food for thought.