If the Obamacare challenge prevails, pressure will fall on states like Arkansas to make a fix | Arkansas Blog

Monday, June 22, 2015

If the Obamacare challenge prevails, pressure will fall on states like Arkansas to make a fix

Posted By on Mon, Jun 22, 2015 at 8:36 AM

A decision in King v. Burwell, the challenge to Obamacare pushed by conservative activists, could come as soon as this morning. As we've been explaining all week, a win for the plaintiffs could eliminate billions of dollars in subsidies in 34 states, leading to skyrocketing premiums, a massive increase in the number of uninsured, and unraveling insurance markets. 

In Arkansas, around 50,000 low-to-middle-income people could immediately lose subsidies — they would either lose their health insurance or face an average hit of $1,700 for the remainder of 2015 alone. Things would get even worse in 2016. Even more Arkansans stand to lose subsidies (the Congressional Budget Office has projected more than 100,000 Arkansans receiving subsidies in 2016); meanwhile, as people left the market because they couldn't afford their insurance, premiums would go up for everyone shopping on the Arkansas Health Insurance Marketplace, regardless of whether they qualified for subsidies. 

The situation would be a catastrophe for the state's marketplace and the consumers dependent on it, and the prospect of tens of thousands of Arkansans losing insurance or facing astronomical price increases would put tremendous pressure on the state to do something about it. The simplest solution would be for Congress to fix the problem — the ambiguity in the law that prompted this court challenge could be resolved with an easy one-sentence fix — but there is basically zero chance that the GOP-led Congress will provide a solution. The political situation is almost perfectly absurd: Republican lawmakers clearly recognize that a crisis will come if Obamacare subsidies go away, but solving that crisis would entail, well, restoring Obamacare subsidies. Surrender! Can't have that! 

With no help from Congress, the most likely outcome if the plaintiffs win in King v. Burwell: a scenario in which each of the 34 states face a choice, to restore subsidies or not. The thing to keep in mind about this lawsuit is that it's not a direct challenge to the underlying law. It addresses an administrative technicality: states that choose to run their own marketplaces can clearly receive the law's subsidies. The plaintiffs allege (an allegation hotly disputed by the law's backers, but we'll leave that for another day) that subsidies are disallowed in states that choose to let the feds run their marketplaces, or states, like Arkansas, with a federal-state partnership marketplace. States like California and Kentucky, which have state-run marketplaces, aren't impacted at all by the King lawsuit. Therefore, one solution if the King plaintiffs win is for states to move to state-run marketplaces, which would restore subsidies. 

There are two challenges for states transitioning to state run marketplaces. The first is technical: running a marketplace (often called an "exchange") requires an infrastructure that might take years to plan and implement.  Arkansas may have a leg up on other states, as the nonprofit board for the Arkansas Health Insurance Marketplace, created by Act 1500 or 2013, has already been working on implementing a transition to a state-run exchange and has already received conditional approval from the feds for a state-run exchange for individuals in 2017. Even that would be a year and a half too late. However, many experts closely following the King case believe that, depending on the parameters of the ruling, the Obama administration may have the administrative and legal means to grease the wheels for states. The administration could potentially relax certain standards and provide assistance such that states could choose to make a technical switch to "state-run exchange" quickly. Such an administrative patch, if it's an option, would require approval from the impacted states. 

And that brings us to our second challenge: politics. Arkansas can only make the switch to a state-run exchange (restoring subsidies in the case of a win for the King plaintiffs) if a majority of the legislature ap proves. Remember the Medicaid expansion fight? This would be a re-run of sorts. On the one hand, it's difficult to imagine politicians making the elective choice to refuse hundreds of millions of dollars — leaving tens of thousands of low-to-middle income Arkansans to face either losing their insurance or increased costs in the thousands of dollars and devastating the insurance marketplace in the state. On the other hand, "Obamacare" has a way of turning politics upside down. Republicans in Arkansas would be in the same awkward position as their counterparts in D.C. They would face a crisis, but the simple way to solve the crisis would be considered surrender to Obamacare by the Tea Party base.   

There are a couple of differences between this potential fight and the Medicaid expansion battle. In this scenario, the state isn't being asked to pick up ten percent of the costs down the road; the feds cover all of the subsidies and cost-sharing reductions at stake. The bigger difference: switching to a state-run exchange would require a simple majority, not a supermajority. The Marketplace board is an independent non-profit, so its funding does not require state appropriations. 

As with the question of private option re-authorization earlier this year, all eyes would first turn to Gov. Asa Hutchinson. An immediate solution would almost certainly demand a special session. Given the stakes (and, quite frankly, the number of middle-income people facing a hit), there is a decent chance that he would put the weight of his leadership behind a plan for a quick fix, which would probably be a prerequisite for Republican support in the legislature. Hutchinson has thus far been mum about his plans if the plaintiffs win. 

Even if Hutchinson backs a fix, there will be strong resistance to any move to restore Obamacare subsidies. Seventeen Tea Party legislators wrote a letter to Congress stating that Arkansas would not move to a state-run exchange (they call it becoming an "Obamacare state"). In 2015, the legislature easily passed a bill disallowing the Marketplace board from moving forward with a transition before a King decision and clarifying that legislative approval would be required to move forward with a state-run exchange. Tea Party activists, still licking their wounds from their losing effort to block the private option, have been gearing up for a fight. Keep in mind that Republicans who backed the private option are already sensitive to accusations that they are choosing to implement Obamacare — now they might be asked to save Obamacare subsidies. 

I've spoken with various Democrat and Republican legislators in the last week and no one really knows what to expect. A surprising number of them seem to believe that Congress will offer a solution if the plaintiffs win. It's much more likely that tens of thousands of Arkansans would be dependent on the Arkansas legislature to help them if the Court zaps their subsidies. That's reason enough to be very worried this morning. 

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