Insurance Companies Brace for Financial Setbacks if Supreme Court Defunds Obamacare…Patients to Follow

Friday, February 27, 2015
(photo: Charles Dharapak, AP)

If the U.S. Supreme Court sides with a conservative attack aimed at crippling Obamacare, the insurance industry could find itself drowning in red ink, while millions of Americans could lose their health coverage.


The court is expected in the coming months to make a ruling in King v. Burwell, which seeks to nullify the federal tax credits that subsidize the cost of obtaining health insurance for individuals on the open market. About three dozen states would be affected.


A decision in favor of the plaintiffs who oppose the subsidies could mean a sudden spike in health premiums, according to a letter (pdf) from the American Academy of Actuaries.


The group asked Secretary of Health and Human Services Sylvia Burwell to allow insurance companies to raise premiums because without the subsidies, they would face the risk of becoming insolvent.


“If federal premium tax credits are no longer available to eligible enrollees in [health insurance exchange] states, enrollment could decline precipitously,” the letter states. “Moreover, individuals with high-cost health care needs would be more likely to remain enrolled, while those with low-cost health care needs would be more likely to exit the market.”


From there, the situation could “trigger a death spiral,” in the words of Ian Millhiser at ThinkProgress.


“As healthy people drop their insurance, the insurance companies themselves would no longer have the funds they need to cover their sick customers’ health costs — forcing those insurers to raise premiums even more in order to meet their expenses. Once that happens, however, even more healthy people are likely to drop out of the market. Which will cause premiums to go up again. Which will cause more healthy people to drop their insurance. Which will cause premiums to go up. Such a death spiral could potentially collapse the individual insurance market in many states,” Millhiser wrote.


A brief (pdf) filed with the Supreme Court on behalf of the American Public Health Association and numerous health scholars estimates that, due to the loss of insurance to support Americans’ healthcare, “over 9,800 additional Americans” will die if the high court rules in favor of the plaintiffs.


Another sobering assessment from the Department of Health and Human Services and the RAND think tank shows heath insurance holders could experience a premium jump of 322% followed by another one of 47% if the court throws out the tax credits.

-Noel Brinkerhoff


To Learn More:

Premium Rate Filing Implications of King v. Burwell (American Academy of Actuaries) (pdf)

Insurance Companies Preparing For Disaster If The Supreme Court Guts Obamacare (by Ian Millhiser, Think Progress)

Anti-Obamacare Legal Case is a Lawsuit in Search of Victims (by Danny Biederman and Noel Brinkerhoff, AllGov)


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