Virtually all commentators on King v. Burwell agree that a Supreme Court ruling against the government would be disruptive. But most skip over the potential real-world impact of the loss of health insurance subsides for millions of people, preferring instead to speculate on how Congress, the Obama administration, or the states might stave off insurance market failures. This is the first in a series of four posts examining the serious consequences of a decision that would terminate subsidies for residents of the 34 states that have federally run health insurance marketplaces. Today we look at how consumers would fare under the “Subsidy Shutdown” scenario. Subsequent posts will focus on insurers, health care providers, and states.
More than 7 million people in states with federally run marketplaces currently receive subsidies. But if they suddenly had to pay unsubsidized premiums, most would no longer be able to afford their coverage. For example, a 40-year-old nonsmoker in Cheyenne, Wyoming, earning $20,000 annually pays $84 in premiums each month if she chooses the benchmark silver plan. If subsidies are terminated, she pays $407 for the same plan—more than 20 percent of her wages. In the more competitive Miami insurance market, that same woman pays the same amount for the benchmark plan with the subsidy in place ($84), but the price jumps to $274 without it.
Consumers facing premium increases of this magnitude would have to choose between health insurance and food, rent, and other essentials. Most would stop paying premiums immediately. In the aggregate, a Subsidy Shutdown could result in as many as 9.6 million fewer people with coverage through the individual market, both inside and outside the marketplaces, by 2016—that’s a 70 percent decline. And patients who managed to cover their full-priced premiums for 2015 would likely face much higher premiums for 2016. Premiums are forecast to increase 47 percent next year, as healthy people drop their coverage and high-risk people retain it. Such a spike would drive even more people out of the market.
The net result would be an individual health insurance market even more dysfunctional than the one we had before the ACA was enacted: while health coverage was unaffordable or entirely inaccessible to those with pre-existing conditions before the ACA, a Subsidy Shutdown-generated premium death spiral would put insurance out of reach for healthy and sick individuals alike. The consequences would be dramatic.
In many cases, going without health insurance would mean going without health care. Because only 13 of the 34 federal marketplace states have expanded eligibility for Medicaid, there would be only a dramatically reduced public safety net available to millions of poor adults. Even states that have expanded Medicaid would only be able to provide coverage to individuals with incomes just above the federal poverty level. Middle-income individuals would be left to negotiate with providers for health care bargains, seek charity care, or draw down the limited resources of government programs and public foundations that support specific patient populations, such as the federal Ryan White HIV/AIDS program or the Breast and Cervical Cancer Treatment Program.
We already know that uninsured individuals are less likely to receive preventive care and twice as likely to delay needed care. For example, a woman who has coverage through the marketplace today is three times more likely to obtain an ultrasound for a breast lump or abnormal mammogram than an uninsured woman. Because of medical breakthroughs in the treatment of AIDS, cancers, and other diseases, reliable access to health coverage is in many cases a significant factor driving health outcomes. Uninsured individuals have worse health outcomes and are more costly to the health care system. By one estimate, the Subsidy Shutdown could result in 9,800 preventable deaths annually.
For uninsured patients who manage to get care, the financial costs would be crippling. Medical debt is already the single largest cause of consumer bankruptcies, and it would only get worse as millions joined the ranks of the uninsured. The burden of being uninsured weighs most heavily on those with chronic disease: cancer patients are two-and-a-half times more likely to file for bankruptcy than other people.
The Subsidy Shutdown would have indirect economic costs, too. Because health coverage is so closely linked to employment, the prospect of “job lock” is a concern. That occurs when workers stick with their current job, instead of engaging in entrepreneurial or otherwise more productive employment, just so they can keep their health benefits. Job lock harms small businesses, which often cannot afford to provide insurance and therefore can’t recruit employees from larger businesses that can afford it. While pre-ACA federal laws took some steps to counter job lock, they had limited effect: before the ACA, half the uninsured were owners or employees of small businesses and their family members.
The Affordable Care Act has given people who must buy coverage in the individual market nearly equal access to affordable health insurance as people with group coverage. A Subsidy Shutdown would reverse that progress.