King v. Burwell SCOTUS Case: A Potential Game-Changing Challenge to Obamacare

By Bill Bithoney and Venson Wallin

The U.S Supreme Court ruling on King v. Burwell will decide the legality of federal tax credits that subsidize individuals’ health plan costs in the 34 states that didn’t establish health insurance exchanges. An adverse decision could potentially result in large numbers of newly uninsured individuals – up to 4.5 million people who are receiving tax credits could lose them[1], and many more who would have been eligible (about 19 million) would lose access. Besides increasing providers’ uninsured care burdens, the insurance markets in these states could also suffer if enrollment drops and demographics shift to a mix that includes more chronic – and thus more costly – illnesses.

What is the Fallback Plan?

Is there a Plan B should the Supreme Court of the United States (SCOTUS) rule that the tax credits are not legally permissible? Technically, yes. If the states in question implemented state-run exchanges that met Obamacare’s requirements, health plan enrollees would retain access to the tax credits.

The execution of such a Plan B, however, could be problematic, even beyond the obvious political challenges. The timing and logistics of such feats  – 34 of them –raise real doubts about their ultimate success. Let’s apply a real life timetable to the issue. For simplicity’s sake, we will stick with the states in question looking to create their own exchanges (waivers and governor-directed initiatives are other alternatives as well, but represent even more difficult legal and logistical hurdles).

If SCOTUS hears the case in March and rules in June, the ruling would likely take effect in July or August 2015. But since the Department of Health and Human Services requires that states secure approval for their exchanges at least 6.5 months before launch[2], the earliest these exchanges could launch would be February/March 2016 – jeopardizing the ability of displaced enrollees to sign up for a new health plan for 2016. Waivers and governor-directed initiatives could lead to delays until 2017.

This Plan B also assumes states establish state exchanges immediately upon an adverse ruling, something they’ve thus far been loath to do and, barring dramatic shifts in political opinions, are unlikely to move toward quickly.

Conclusion

The implications of King v. Burwell touch providers, payers, patients, and federal and state governments, and they are numerous. States need to start considering what impact such a decision may have on their populations, what alternatives may be available to them, and what steps need to be taken sooner rather than later to realize those alternatives should they become necessary.

Additionally, health plan enrollees themselves need to follow this decision and their own state’s efforts to address sustained health plan exchange viability and enrollment.

Finally, providers need to continue their efforts to control costs and/or partner and affiliate. These measures have become the standard operating practice within the industry as reimbursement reductions from various Obamacare provisions have significantly reduced revenue, Disproportionate Share Hospital (DSH) payment reductions being top of the list. While the theory behind the DSH reductions was that they would be offset by adding more insured patients to the population, that assumption has not been realized in many of the states in question, as not all have expanded Medicaid. Now, on top of that, a significant increase in uninsured patients will likely drive up bad debts and charity care write-offs.

Providers must focus on optimizing days cash on hand and days in accounts receivable to prepare for what may be a renewed challenge to profitability and sustainability. Bottom line – prepare for the worst and hope for the best.
 

[1] Levitt L, Claxton G. The potential side effects of Halbig. Kaiser Family Foundation (http://kff.org/health-reform/perspective/the-potential-side-effects-of-halbig/).
[2] Bagley N, Jones D, Jost T. Predicting the Fallout from King v. Burwell – Exchanges and the ACA. The New England Journal of Medicine.