Health Policy$ense

52 Economic Scholars Not Friendly to ACA Subsidy Challenge

As they had in an earlier case, a notable group of bipartisan economic scholars and professors have filed an amicus brief  in support of the government’s position in King v. Burwell, the Supreme Court case challenging the availability of premium subsidies on the federal exchange. Once again, three Penn professors (and LDI Senior Fellows)—Ezekiel Emanuel, Mark Pauly, and Dan Polsky—signed on to the brief.

The brief reviews the economic underpinnings of insurance markets, and explains why subsidies are essential to the central aim of the Affordable Care Act (ACA), which is to achieve broad and affordable coverage. It lays out the basic economic framework behind the ACA, a three-legged stool consisting of non-discrimination rules (insurers can no longer refuse coverage or charge higher premiums on the basis of pre-existing conditions), an individual mandate to purchase insurance, and premium subsidies to make that coverage affordable. The challengers contend that Congress intended subsidies to be available only in states running their own health insurance exchanges, and not in states relying on the federal one. The brief asserts that this interpretation

would chop out the third leg from this three-legged stool in all States where the federal government operates an Exchange, destabilizing the insurance market in those States and frustrating Congress’s clearly stated goal of broadening coverage.

What would happen if the Court rules that this was exactly what Congress intended to do?  Bagley, Jones and Jost note that up to 4.5 million people in 34 states would quickly lose their subsidies, and states would face immediate destabilization of their insurance markets. The Kaiser Family Foundation has a state-level interactive map of the population at risk. The brief goes further, citing the results of two economic models:

Economic modeling confirms what Congress understood: without premium subsidies for every eligible person who buys insurance on an Exchange, the ACA cannot achieve its goals.  Both the Health Insurance Policy Simulation Model (“HIPSM”) developed by the Urban Institute [link added] and the Comprehensive Assessment of Reform Efforts (“COMPARE”) model developed by RAND Corporation [link added] predict that approximately 8 million fewer people will be insured by 2016 if subsidies are unavailable.  These models also predict that premiums will rise by 35% or more on the federally operated Exchanges in the absence of subsidies.  Moreover, these effects would not be limited to the Exchanges themselves.  Everyone who buys insurance in the non-group market would suffer, because the ACA requires that insurers treat everyone who buys insurance in the non-group insurance market as comprising a single risk pool.  Accordingly, increases in health insurance premiums inside Exchanges will cause premiums to rise outside Exchanges as well.

The Supreme Court will hear oral arguments on the case March 4, 2015, and a decision is expected in late June or early July. For a good backgrounder on the case, see this by Adrianna McIntyre on vox.com.