A federal Court of Appeals panel in Washington, D.C. today released a decision that, if upheld, would strike down one of the main pillars of the Affordable Care Act (“ACA”) and in the minds of many observers lead to unpredictable consequences. In a 2-1 decision in Halbig v. Burwell, the three-judge federal appeals panel reversed a decision by a lower District Court judge and held that tax subsidies made available under the ACA (often referred to as Obamacare, with or without derision) to lower income individuals–generally individuals making less than $46,075 annually–to help defray the cost of health care coverage may not be extended to such individuals who reside in states that have elected not to establish their own health care exchanges under the ACA. The plaintiffs in the case argued that Congress intended that the subsidies only be available in states that set up their own exchanges. This panel embraced that argument (although this decision may find its way to the United States Supreme Court). Until now, the court decisions on this issue have favored the federal government, so this decision properly can be characterized as at least a mild surprise.
If this decision stands, a large number of individuals could be affected. Twenty-seven states (most of which are controlled by Republicans) opted not to create their own exchanges. Nine other states essentially have elected to partner with the federal government, and so presumably they too would be affected by today’s decision. Only 14 states (plus Washington, D.C.) are sponsoring their own exchanges, and thus would be unaffected.
The subsidies available under the ACA can be crucial to ensure affordable coverage. According to a recent report issued by the Department of Health and Human Service, individuals who purchased plans with subsidies have a net premium cost that is on average 76 percent less than the full premium, which reduces their average premium from $346 to $82 per month. These individuals would be confronted with a significant increase in the cost of coverage. It is worth noting that this decision does not affect the obligation imposed under the ACA on these individuals to purchase coverage or face a penalty (although the option to obtain coverage may become less appealing for individuals, many of whom likely would be younger, who think they are healthy and thus perceive themselves as less in need of coverage). Approximately 5.4 million individuals signed up for coverage on the federally-run exchange early this year, and approximately 87 percent of those individuals are expected to receive subsidies. The system created by the ACA, including cost control initiatives, could face considerable pressure if as a result of this decision a high percentage of covered individuals are older and sicker. The stakes are high.
While Congress could fix this problem legislatively, any thoughts of congressional action seem fanciful. Once again, this issue will have to play out in the courts, and we all get to watch.