For health insurance agents and brokers, the U.S. Supreme Court is more than a source of legal rulings. It’s also a potential creator of sales opportunities.
Issuers of health insurance products beyond the laws and regulations that affect new major medical coverage, such as short-term health insurance and hospital indemnity insurance, may suddenly find they have five to nine highly influential marketing assistants on their side if the court rules in June that the public health insurance exchanges created by the U.S. Department of Health and Human Services (HHS) have no authority under the Patient Protection and Affordable Care Act (PPACA) to provide premium exchanges.
The court could issue a verdict on that topic sometime between March and June, in connection with King vs. Burwell, a case that hinges on whether PPACA drafters intentionally failed to mention whether the HHS-created exchanges could provide exchanges or were just a little unclear in their writing.
The federal appeals court that sided with the Obama administration and agreed that the HHS exchanges could provide access to the PPACA premium tax credit program said the exchanges could do so because the written statute is so ambiguous that the HHS secretary has the authority to apply another provision that gives her the ability to interpret ambiguous provisions.
If opponents of PPACA win, and the court issues a clear ruling against the Obama administration, the court would not “kill PPACA,” and it would not directly kill the PPACA public exchange system.
In any state that’s running a pure state-based exchange, the exchange could certainly continue to offer premium subsidies. A state that actively agrees to let HHS run an exchange program for its residents could probably still offer premium subsidies, but the situation there is somewhat fuzzier. In states that object to PPACA and are refusing to have anything to do with PPACA, the subsidies are likely to die.
Today, 16 states and the District of Columbia are running state-created exchanges, and another seven are sharing the exchange management job with HHS.
Another 27 states depend entirely on HHS and the HHS HealthCare.gov enrollment system for exchange services. If the Supreme Court kills the HHS exchange subsidy, the exchanges might have to stop offering subsidies. It’s not yet clear whether the exchanges would have to find a way to try claw back some or all of the subsidies they provided for 2014 coverage, or for 2015 coverage in force before the ruling comes out.
The PPACA laws requiring individuals to own a minimum level of coverage or face the possibility of paying a penalty would still apply, although HHS and the Internal Revenue Service would likely move quickly to make a hardship exemption available to consumers who lost the ability to pay for coverage due to a sudden loss of PPACA subsidy money.
The highest-income HHS exchange users would simply keep their coverage, because they were already paying for their coverage without help from HHS premium subsidies.
Many of the moderately high income consumers who were suddenly stranded might have a sudden willingness to pay for short-term health insurance or other products that could make up for the loss of subsidized major medical coverage.
The consumers most likely to buy alternative coverage may be those with household income at roughly 250 percent to 400 percent of the federal poverty level — consumers who had a low enough income to qualify for premium subsidies, but a high enough income that they did not qualify for the extra cost-sharing reduction subsidies that PPACA provides for lower-income QHP buyers.
Linda Blumberg and Erik Wengle estimated in a recent report that, in 2016, if the exchange program continues to grow as expected, without Supreme Court-related disruption, about 40 percent of the exchange plan enrollees, or 9.4 million people, would be eligible for premium subsidies but not for cost-sharing reduction subsidies.
Estimates of how many people in each state are in the “premium subsidy, but no cost-sharing subsidy” category are not readily available.
Another way to estimate how big the Supreme Court gap-filler market could be in each HHS state is to look at the ratio of the actual amount exchange users are paying for coverage compared to the overall HHS exchange average.
PPACA requires the exchanges to use a complicated formula based on the actual cost of coverage and users’ income to come up with subsidy amounts and the actual amounts consumers pay each month out of pocket. But the gist of the formula is that, the more the average consumer pays out of pocket for subsidized exchange coverage, the higher that consumer’s household income is.
To see a list of states with HHS-created or HHS-administered exchanges — states in which sales of short-term health insurance and similar products could ride a rocket if the Supreme Court rules against HHS exchange subsidy access with the number of QHP selectors (potential enrollees) as of Jan. 15 — read on.
10. Michigan: 127%
QHP selectors: 299,750.
Image: Detroit (AP photo/Carlos Osorio)
9. Illinois: 127%
QHP selectors: 286,888.
8. Wyoming: 129%
QHP selectors: 17,821.
7. Oregon: 134%
QHP selectors: 90,345.
This state is somewhat of a ringer. Oregon loves its exchange, but technical problems in 2014 forced it to let HHS provide enrollment services this year.
6. New Hampshire: 134%
QHP selectors: 46,642.
5. West Virginia: 136%
QHP selectors: 27,471.
Image: West Virginia coal miner
4. North Dakota: 138%
QHP selectors: 15,606.
Image: North Dakota
3. Delaware: 139%
QHP selectors: 20,449.
2. Ohio: 143%
QHP selectors: 196,073.
Image: Cincinnati (Photo/Al Behrman)
1. New Jersey: 164%
QHP selectors: 211,788.
Image: Hoboken, N.J.
Where HHS exchange users have an easier time paying for health insurance
|Ratio of average monthly premium to HHS exchange average|