King v. Burwell and the private option | Arkansas Blog

Thursday, June 18, 2015

King v. Burwell and the private option

Posted By on Thu, Jun 18, 2015 at 6:10 AM

All week we've been looking at the potential fallout from King v. Burwell, the challenge to Obamacare pushed by conservative activists that could threaten subsidies that help 48,000 Arkansans — and 6.5 million Americans — afford their health insurance. (A decision in the case could come as soon as this morning.) 

If the plaintiffs win, what would this mean for the private option, the state's unique version of Medicaid expansion? The private option uses Medicaid funds available via Obamacare to purchase private health insurance for low-income Arkansans. The policy covers people who make below 138 percent of the federal poverty level (around $16,000 for an individual or $33,000 for a family of four). The King decision will directly impact people who make a little bit more than that — Arkansans who make between 138 and 400 percent of FPL are eligible for subsidies (for an individual, that's up to around $47,000; for a family of four, that's up to around $95,000). But keep in mind that everyone — the PO beneficiaries and the non-PO consumers — are shopping on the same marketplace. 

Here's what you need to know about the King decision and the private option: 

1. A win for the plaintiffs in King v. Burwell would have no direct impact on the funds which enable the private option. The Supreme Court could zap the subsidies which help consumers who make too much money to qualify for the private option. But a ruling in King wouldn't stop the private option, which would continue as is. Beneficiaries would continue to get their coverage (fully paid for, with only minimal cost-sharing).

2. A win for the plaintiffs in King could make the private option more expensive. If the Court ends the subsidies, many of the 48,000 Arkansans impacted would no longer be able to afford their health insurance, and would be forced to drop out. The sickest among them might be desperate enough for care that they find a way to scrape together the money. This is the worst-case scenario for insurance markets: what's known as "adverse selection," with sick people staying and healthy people leaving. That drives prices up, which leads to…more sick people staying and healthy people leaving, driving prices up even further. What does all of this have to do with the private option? Remember, the private option purchases health insurance plans for beneficiaries on the Arkansas Health Insurance Marketplace — the same Marketplace where subsidies for non-PO consumers are in jeopardy. If a King ruling leads to skyrocketing premiums on the Marketplace, that means much higher costs for the private option. But...

3. The Arkansas Health Insurance Marketplace could be uniquely positioned to survive the loss of subsidies because of the private option. As mentioned above, the population of non-PO consumers impacts the costs of the private option, because it's all one big pool of covered people on the Marketplace. But that works the other way too: the private option population impacts the premiums for everyone else (and because the private option population leans younger and healthier, it has helped lead to lower premiums on the Marketplace). A whopping 80 percent of the Marketplace is made up of PO beneficiaries. From day one, the Marketplace has been stronger because of the private option. The private option would become even more crucial in the wake of a win for the King plaintiffs. While a subset of the Marketplace — consumers dependent on subsidies — would be facing a financial crisis, with many dropping out, the overwhelming majority of the Marketplace — private option beneficiaries — would see no change at all. 

This would put the Marketplace in Arkansas on much surer footing in the wake of a win for the King plaintiffs than other states losing subsidies. The impact of King-driven adverse selection could drive up premium prices by 35-45% or more, according to the Urban Institute, RAND Corporation and American Academy of Actuaries (an especially tough blow for lower-income folks who would also lose subsidies and cost-sharing reductions). But in Arkansas, that adverse selection problem would only be hitting 20 percent of the customers – the other 80 percent, private option beneficiaries, aren’t price sensitive at all since the government is picking up the tab, which it will continue to do regardless of what happens in King. This would be cold comfort to lower-income consumers unable to purchase insurance after losing their subsidies, but the private option would likely mitigate the damage and prevent the total collapse of the market that other states might have to reckon with. Premiums would still go up because of the factors noted in #2 above, but the impact would almost certainly be less dramatic thanks to the private option.

4. The Medicaid rolls could grow. This is more speculative, but a scenario in which private option beneficiaries are fully covered, while people making a bit too much (say, between 139 and 200 percent of the federal poverty level) don’t get any public help at all, would put enormous financial pressure on people covered by the private option to stay on the private option (or people who make just a little too much to qualify for the private option to aim to reduce their incomes). It’s already the case that someone with an income that rises above the line faces incrementally higher costs for a subsidized plan they purchase on the Marketplace than a private option plan, which has free premiums and minimal cost-sharing. But as it stands today, people just above the line are eligible for very generous subsidies and cost-sharing reductions that minimize those costs. If the King plaintiffs prevail, the difference in premiums and out-of-pocket costs for someone just above or just below the private option eligibility line would be astronomical. While people at this income level do not typically have control over their income fluctuations or a clear understanding of the nuts and bolts of the eligibility determination process, such an extreme cliff could create unusually strong incentives and push people to more aggressively seek or maintain Medicaid eligibility. 

So how would all of this shake out politically? Who knows! A win for the King plaintiffs could harm the private option by increasing costs. On the other hand, the private option might be the only thing keeping the Marketplace afloat and premiums reasonable. That impacts tens of thousands of Arkansas consumers, a number likely to grow in the coming years as more people transition off of plans not compliant with the health care law.

The way forward for the private option is already hazy, with a rabidly anti-Obamacare legislature awaiting word from the governor’s Health Reform Task Force. A ruling that stripped subsidies for almost 50,000 Arkansans, while not directly touching the private option, would add complications that make that future even harder to predict. 

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