Subsidy showdown looms

CEDAR RAPIDS - The Affordable Care and Patient Protection Act survived a bruising battle in 2012 when the U.S. Supreme Court upheld the individual mandate, by a 5-4 vote, which requires Americans to buy health insurance.

But it will face another huge fight on Wednesday.

That's when the Supreme Court will hear arguments for King v. Burwell, a case that ultimately will decide the fate of health care subsidies in states where the federal government completely or partially runs the health insurance marketplaces - including Iowa.

That case will determine if the Internal Revenue Service can grant tax subsidies to those who purchase coverage through exchanges established by the federal government.

The court won't come back with a decision until June. But whatever is decided will affect more than 7 million people nationwide - and 30,000 here in Iowa - who rely on subsidies to afford their legally required insurance, according to U.S. Department of Health and Human Services figures.

'This is important because if those people in those states are not allowed to get subsidies, many will lose the ability to pay for insurance …

and will pull out of the risk pool,” said Pete Damiano, director of the Public Policy Center at the University of Iowa. 'If you're left with a bad risk pool” made up of very sick people who need insurance 'that can undermine what's going on with the foundation of the ACA.”

The case

When the Affordable Care Act (ACA) was created in 2009, it set out to accomplish several things, law and health care policy experts note.

The first was to limit the practice of using underwriting by insurers to charge a higher rate or deny coverage to someone with a pre-existing condition. The second was to push people, even those who are healthy, to purchase insurance through the individual mandate.

The last piece of the puzzle was to provide tax subsidies that would allow lower- and middle-income Americans to be able to afford insurance.

Meanwhile, states were required to set up exchanges to sell private insurance plans. States could either establish the exchange themselves or, if they declined to do so, have the federal government set up an exchange for them or partner with the government.

Because of the political divisiveness of the ACA, many states didn't want to appear to work with the president, leading 37 states to chose to not set up an exchange on their own, recalled University of Iowa law professor Todd Pettys.

And there lies the problem.

That's because of a line in the statute, Pettys explained, that reads that tax subsidies will be given to those who enroll in health insurance through 'an exchange established by the state.”

The federal government contends that the ACA allows subsidies to anyone who purchases insurance through an exchange while the challengers say subsidies should be available only to those buying on state-run exchanges.

Because of so many states' initial unwillingness to participate, Pettys said the question then becomes: Did Congress intend to withhold subsidies as a way to get states to set up exchanges?

Tax subsidies 'were a strong lever to force officials to set up an exchange,” he said.

But he said the federal government has a fallback plan and can argue that the statute is ambiguous, and therefore must defer to the interpretation of the Internal Revenue Service, the agency tasked with implementing much of the ACA, including the tax subsidies.

This is because of the Chevron principle, named for Chevron v. Natural Resources Defense Council - in which the Supreme Court determined courts should defer to agency interpretations of statutes unless they are unreasonable.

Chevron v. Natural Resources Defense Council involved a dispute over the U.S. Environmental Protection Agency's interpretation of a provision of the Clean Air Act.

'Congress oftentimes passes a statute that has been crafted with broad outlines - it won't get into the nitty-gritty,” Pettys said. 'And then they'll turn it over the administration of the law to a group of experts.”

What this could mean for Iowa

If the Supreme Court were to decide Iowans and others in federally run or partnership states were no longer eligible for subsidies, experts say states have several different options.

Those states could transition to a state-run exchange, 'but they have to have the political will to do so,” Pettys said.

Nick Gerhart, Iowa's insurance commissioner, told The Gazette the state legislature ultimately would be the group to decide whether Iowa should switch to a state-run exchange. And as of now, there hasn't been much interest.

Bills were introduced in past legislative sessions, but none made it out of committee, and Gerhart said there hasn't been much talk this year, either.

'We haven't had a lot of conversations regarding the Supreme Court,” he said.

And because Iowa partners with the federal government to manage the marketplace - the state regulates the insurance plans but Iowans purchase plans through HealthCare.gov, the federal government's website - the Public Policy Center's Damiano said it's unclear what Iowa would have to change to qualify as a state-run exchange.

Damiano added that some states may decide to not transition immediately but could after seeing how the country reacts, such as with the Medicaid expansion.

'It just might take a while, they might have to make adjustments,” he said.

But if Iowa or other states choose not to do anything, it could begin the 'death spiral,” Pettys said, referring to a possible scenario in which individuals drop out of the insurance pool because they can no longer afford it, prompting premiums to rise and forcing more people to drop out because of cost.

This would continue until very few people remain with insurance.

And it makes executives at hospitals and insurance companies nervous.

The Washington Post reported on Friday that Mark T. Bertolini, Aetna's chief executive, has been speaking with Senate Majority Leader Mitch McConnell on the matter. Aetna - parent company of Coventry Health Care, which sells insurance in Iowa's marketplace - participates in insurance exchanges in 17 states. And only one has set up its own marketplace.

'Premiums go up and up and up,” he said. 'People may look and see a state nearby on a state-run exchange has a nice job, affordable insurance, and leave.”

Large numbers of people without insurance means a huge problem for hospitals and the providers who care for them, said Kirk Norris, president and chief executive officer of the Iowa Hospital Association, which advocates for the state's more than 100 hospitals.

'There's no such thing as a free lunch,” he said. If the number of uninsured were to increase, 'you'd see charity care increase, bad debt increase.”

That's why the hospital association is in favor of transitioning to a state-run exchange.

'At the end of the day, people have to be able to access care,” Norris said. 'And in this country access to care is proportionally related to access to insurance.”