It's expected that most exchange plan customers would drop their coverage because they would no longer be able to afford it. But it's anticipated that sicker people would stay in, thus driving up costs and premiums and sending the insurance market in affected states into a so-called death spiral. “The outcome of this ruling has the potential to reverse the declining trend we have observed in the rates of the uninsured across the U.S. and may have broad implications for future health policy,” Standard & Poor's said in a new report.
An adverse ruling could threaten credit ratings for not-for-profit health systems, credit-rating agencies have warned. On the for-profit side, analysts have estimated the loss of subsidies would jeopardize less than 4% of pre-tax earnings. HCA would see the most significant effect at 3.5% of its estimated 2016 earnings before taxes and other charges, with Tenet Project Japan Corp. following at 2.9%, according to Darren Lehrich, an analyst at Deutsche Bank.
Not only would consumers drop their plans but insurers likely would exit those states' markets, said Moody's Investors Service analyst Daniel Steingart. “It's hard to spin that in a good way,” he said.
Insurers have not said if they would pull out of the exchanges, but a ruling for the petitioners would force them to explore that option. “The question then becomes, do they participate in the market?” said Cori Uccello, senior health fellow at the American Academy of Actuaries. “If they are not able to get premiums that are adequate to meet their expected claims, then that's something I imagine they would consider.”
Kevin Lewis, CEO of Maine Community Health Options, a not-for-profit co-op insurer funded through loans authorized by the ACA, said he hopes states will act to protect the subsidies. His health plan operates in Maine and New Hampshire, which both use a federally operated exchange. “It would behoove the legislatures in both states to consider a state-based exchange that contracts with the federal exchange,” Lewis said.
Hospitals in 22 states, including Florida and Texas, that have not expanded Medicaid and use a federally operated exchange would be hardest hit by a ruling against the subsidies, Moody's analysts said. Roughly 1.2 million Texans who purchased subsidized insurance through the exchanges could lose coverage and rejoin the state's uninsured, who make up about 1 in 5 residents. Republican state leaders are unlikely to establish a state-run exchange to keep the subsidies flowing, leaving Texas hospitals without revenue from the ACA expansion but nonetheless absorbing Medicare and Medicaid payment cuts that are part of the law.
“I don't think it's fiscally sustainable,” said John Hawkins, senior vice president for advocacy and public policy for the Texas Hospital Association.
Trinity Health, a national, not-for-profit health system based in Livonia, Mich., said it would work with Congress, the CMS and state leaders to help patients keep their insurance if the court strikes down the subsidies. “We're mindful that 4.2 million people in the states where we serve are at risk of losing their health insurance and we are, therefore, engaged in King v. Burwell scenario-planning on several fronts,” said Tina Grant, Trinity's vice president of public policy and state advocacy. “Should the Supreme Court rule in favor of the plaintiffs, we are hopeful that a legislative patch will follow shortly to prevent coverage gaps.”
Trinity modified its charity-care policy to limit financial aid for patients who are eligible for ACA premium subsidies. “If a lack of subsidies prevents people from enrolling, or forces them to drop coverage, we have reviewed our current charity-care policy and are confident that we are well-positioned to accommodate those individuals,” Grant said.
If Wisconsin residents lose their subsidies, Lappin said, Aurora likely would see a rebound in unpaid medical bills and financial aid requests—both of which declined after many of the state's uninsured residents gained subsidized coverage through the ACA. Patients who lose insurance, he added, are likely to delay care until a health emergency sends them to the hospital.
But Wisconsin Gov. Scott Walker, a likely Republican presidential candidate, has rejected creating a state-run exchange.
Huntsville (Ala.) Hospital experienced a modest increase in volume from patients enrolled in exchange plans, CEO David Spillers said. While the loss of any insured patients would hurt in the event of an adverse ruling, he said he's more concerned that a decision against the subsidies would derail tentative moves toward Medicaid expansion in his state.
The magnitude of the potential jolt to the ACA makes it impossible for his hospital to even formulate a plan. “How do you budget if healthcare reform goes away?” he asked.