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March 4, 2015 5:52 am

Future of US healthcare law hangs on a single phrase

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Since its passage in 2010, the healthcare reform law known as “Obamacare” has survived unwavering opposition from Republicans, a federal election and a Supreme Court challenge to its constitutionality. But it could all unravel on the basis of a single phrase within its 906 pages.

The Affordable Care Act faces its latest test at the US Supreme Court in the case of King v Burwell, which will be argued on Wednesday and decided in the spring.

A decision against it would undermine much of the law’s economic underpinning and cause disruption throughout the healthcare sector. It could leave 8.1m people unable to afford coverage and result in a $9.7bn net decline in healthcare spending for 2016, according to the Urban Institute, a left-leaning think-tank. Insurance markets would be thrown into disarray, with premiums estimated to increase as much 47 per cent in the affected states, according to the Rand Corporation think-tank.

Citing the phrase “established by the state” in the law’s wording, the conservative plaintiffs in King v Burwell allege that the Internal Revenue Service has unlawfully paid out premium subsidies in states that refused to construct their own health exchanges but instead relied on, the federal government’s own exchange.

They argue that the subsidies were not supposed to be distributed to all states but rather to serve as an incentive to states to build their own exchanges.

“If the states didn’t set up the exchanges, they would not get the subsidies,” says Sam Kazman of the Competitive Enterprise Institute, a free-market group that has spearheaded the challenge. “But then the IRS comes along and basically says ‘subsidies for everyone’.”

Should the premium subsidies be struck down, the average out-of-pocket expense for consumers would more than triple from $105 to $374 per month, according to Department of Health and Human Services data.

“If people do lose badly needed health insurance, it really is the IRS that is the culprit here,” said Mr Kazman.


projected net decline in healthcare spending

Because 34 states, including many led by Republicans in the southeastern US, opted not to build their own exchanges for financial reasons or as a means of protest, many residents who used the subsidies to obtain health insurance are at risk of losing it.

“I’m afraid a lot of Floridians will suffer because of the rigid and partisan ideology of the governor and extremists in the state legislature who were determined to undermine federal healthcare reforms,” said Bill Nelson, a Democratic senator from Florida, which would see its uninsured population rise by more than 1m.

Five southeastern states alone — Florida, Georgia, Louisiana, North Carolina and Texas — would shoulder $4.6bn in lost healthcare spending — nearly half of the total nationwide impact

In the Republican stronghold of Texas, where a quarter of the population of 27m is uninsured, 1m people have signed up to receive subsidised coverage through the federally run portal.

“As conservative as we are, we understand that when the free market fails, it is the responsibility of the government to correct it and provide the appropriate financing mechanisms,” said John Hawkins, senior vice-president of government relations at the Texas Hospital Association, an industry that has benefited from the expansion in coverage.

Hospitals and insurance companies are bracing for a shock should federal subsidies dry up. Though many of them initially opposed Obamacare, they are now flocking to help the government defend it.

America’s Health Insurance Plans, a trade group, said in a friend of the court brief that removing the premium subsidies would create “severely dysfunctional insurance markets” in the affected states.

The American Hospital Association, whose members stand to lose $6.3bn a year from tightened consumer spending and higher uncompensated care, warned that a ruling for the plaintiffs “would be a disaster for millions of lower and middle-income Americans”.

I’m afraid a lot of Floridians will suffer because of the rigid and partisan ideology of the governor and extremists in the state legislature

- Bill Nelson, Florida Democratic senator

It “would devastate some hospitals and leave others without the resources they need to serve their communities”, its filing added.

Complicating matters, much of the US’s $937bn hospital industry is still reeling from the blow dealt to it by the Supreme Court’s previous ruling on Obamacare in 2012. The law itself was upheld, but a requirement that states expand their Medicaid programmes to cover more low-income people was struck down.

Back in Texas, Houston’s Harris Health was recently forced into a round of lay-offs to cover losses it attributed to the state’s decision not to expand Medicaid or offer an alternative.

In all, only half of the states have since opted in to the expansion, throwing a delicate equilibrium out of balance and resulting in more uncompensated care losses for hospitals, says Tim Jost, a law professor at Washington and Lee University. “In states that didn’t expand Medicaid, hospitals are having a lot of problems”.

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