Do Republicans Face Political Peril if Obamacare Subsidies are Deemed Illegal in 27 States?

Four million people in 27 states received a subsidy on federally-run Obamacare exchanges and are getting an average of 76% of their premium paid for courtesy of federal taxpayers.

Those subsidies, in the future, could be impacted by the case now moving through the courts.

As a reminder: this week in a 2-1 decision, the DC Court of Appeals struck down federal premium subsidies in at least the 27 states that did not open state-run health care exchanges on which residents could purchase subsidized health insurance policies under the Affordable Care Act.

The court ruled that individuals are only eligible for subsidies in states that set up state exchanges. Twenty-seven states opted out and nine more set up partnerships. Only 14 instituted purely state-run exchanges.

Supporters of the ACA law, and at least one other court, argue that the law’s language is ambiguous and that subsidies were meant to apply to eligible residents in all states, no matter what.

Health Policy and Strategy Associates analyst Robert Laszewski has some reflections on the issue. They’re worth noting, as he has been very much on target with his projections in the health care debate.

It is hard to see how a Roberts’ Supreme Court would finally deal Obamacare so serious a blow given that the Court upheld one of the core elements of the law with the Chief Justice going through the legal contortions he did by calling the individual mandate penalty a tax. In fact, just after the DC ruling the 4th Circuit Court of Appeals in Richmond ruled in favor of the administration on this issue in a 3-0 decision.

Laszewski says, though, that if the DC Court of Appeals ruling is upheld, it could be “devastating” to Obamacare. The healthiest people may drop their coverage if they don’t receive a subsidy. The sickest will likely keep theirs at all costs. This could cause premiums to skyrocket and lead to the so-called “death spiral” scenario under which the system is unsustainable because too many costly, ill people are receiving benefits without enough healthy “young invincibles” to offset the costs.

“This would put Republicans in the federal exchange states in a heck of a political bind,” says Laszewski. “It seems to me these governors and legislators could opt to immediately contract with the feds to operate their exchanges in order to preserve the subsidies (If a state can contract with Accenture to build and run an exchange, why couldn’t it contract with HHS to do the same?). If the states were to do this immediately, no one would have to lose their subsidies. So what would these Republican governors and legislators do?”

Patient receiving x-ray Photo: Wikimedia Commons

Patient receiving x-ray
Photo: Wikimedia Commons

Could it be that the political consequences of the millions losing their subsidies would shift to Republicans governors who control the states in question? Or would Republicans be able to argue the blame belongs with the Obama administration for operating Obamacare in what the courts will have decided was an improper manner by giving subsidies that are technically not allowed under the law?

“On the surface, Republicans will be attributing this decision to the way the Democrats and the Obama administration wrote this flawed law and the way they have implemented it. But below the surface lots of sensible Republicans must be sweating bullets,” says Laszewski.

P.S. He also notes that no one risks losing their subsidies until the final court decides the issue well after the next open-enrollment November 15th.




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