The U.S. Supreme Court’s new Affordable Court Act ruling could add some stability to the individual and family major medical insurance market, at a time the COVID-19 is shaking everything up.
The court ruled, in a 8-1 decision released today, that Congress can’t cancel what looks like an agreement to pay insurers for participating in a program by simply zeroing out funding for the payments.
The court came to that conclusion in connection with Maine Community Health Options v. United States (Case Number 18-1023). The case involved one of the five major subsidy programs the federal government used to start the Affordable Care Act (ACA) public exchange program.
- A copy of Sotomayor’s opinion is available here.
- An article about oral arguments in the Supreme Court’s ACA cost-sharing reduction subsidy case is available here.
- An article about the Supreme Court’s new ACA risk corridors case ruling is available here.
The Maine Community Health Options ruling could end up affecting the fate of two of the ACA subsidy programs, and the survival of all of the ACA.
Members of Congress created the main part of the Affordable Care Act statutory package, the Patiet Protection and Affordable Care Act, in 2008 and 2009, when Democrats had a solid majority in both the House and the Senate, and Barack Obama was president.
Traditionally, health insurers in most states had kept health insurance claim costs manageable by rejecting applicants who already had serious health problems. Health insurers charged higher when they did accept applicants who had conditions such as asthma, diabetes or obesity.
The ACA drafters took away most of health insurers’ traditional defenses. They prohibited use of information about people’s health problems in insurers’ major medical coverage sales and pricing decisions.
To compensate health insurers for at least part of that loss, the ACA drafters set up the ACA public exchange program. The ACA public exchange program was supposed to set up a web-based health insurance supermarket in each state, to help consumers shop for health coverage, and to use subsidies to buy the coverage.
Drafters also included an individual mandate provision. The provision required many people to have what the government classified as a minimum level of health coverage or else pay a penalty.
ACA drafters hoped to push and pull many young, healthy people to pay at least something for coverage, even when they felt great.
The idea was to protect young, healthy people against unexpected catastrophes, and to reduce the average level of risk in the insured population, to help make up for all of the people with diabetes, cancer and heart disease that insurers would suddenly have to cover.
The ACA Subsidy Programs
The ACA drafters created two temporary subsidy programs and one permanent subsidy program aimed at health insurers.
One temporary program, the ACA reinsurance program, was supposed to use a broad-based fee imposed on most types of health plans and coverage issuers to help pay the medical bills of people with individual coverage who ended up having catastrophic claim costs in 2014, 2015 or 2016.
A second temporary program, the ACA risk corridors program, was supposed to use cash from thriving ACA plan issuers to help issuers that had problems on the exchange in 2014, 2015 or 2016.
A third program, the ACA risk-adjustment program, is supposed to use a national patient risk scoring system to measure the riskiness of each carrier’s enrollees. Carriers with enrollees with low risk scores are supposed to send cash to the plans with the enrollees with high risk scores.
The ACA drafters also created two big subsidy programs that were focused on the individual enrollees.
One was the ACA premium tax credit subsidy, and the other was the ACA cost-sharing reduction subsidy.
The ACA premium tax credit subsidy helps people with income from about 100% of the federal poverty level to 400% of the federal poverty level pay their premiums.
The ACA cost-sharing reduction subsidy is supposed to provide extra subsidy money for premium tax credit users with income under 250% of the federal poverty level, to help them pay health coverage deductibles, co-payments and coinsurance amounts.
ACA Risk Program Performance
In practice, ACA reinsurance program was popular and ended up working reasonably well. Some states have replaced the temporary program with their own state reinsurance programs.
The ACA risk-adjustment program is still in place but has frustrated the insurers that have been told to pay money into the system. Some insurers say the risk-adjustment formula is unfair to insurers with low premiums.
The ACA risk corridors was an immediate flop: Too few ACA exchange plan issuers did well in the first three years of exchange operation to pay more than a small fraction of the amounts owed to the thriving issuers. Opponents of the ACA in Congress succeeded at adding provisions to must-pass budget bills that blocked the federal government from using any money other than payments from the thriving issuers to help the struggling issuers. Some small health insurers went out of business at least partly because of the failure of the risk corridors program to make the expected payments.
Health insurers say the risk corridors program managers now owe them about $12 billion.
On the individual subsidy program side, the ACA premium tax credit subsidy program was designed to draw on general federal revenue and has been stable.
Critics of the ACA cost-sharing reduction subsidy program say it should be funded with an ordinary congressional appropriation, rather than drawing on the same pool of money that the premium tax credit subsidy was supposed to use money appropriated by Congress. Congress has refused to appropriate the money.