For insurers, Supreme Court could demolish a growing line of business

Aetna headquarters in Hartford

Aetna

Aetna headquarters in Hartford

Washington — The nation’s health insurers, including leading companies like Aetna, are hoping the Supreme Court does not strike down a provision of the Affordable Care Act that has brought them millions of new policyholders and provided new growth opportunities for the industry.

What’s at stake are billions of dollars in premiums if the Supreme Court eliminates the ACA’s subsidies to millions of customers in 34 states — most of them young and healthy whose inclusion in insurance pools helps lower premiums for other customers.

The Supreme Court is expected to rule any day now on King v. Burwell, a case brought by opponents of the ACA that centers on one phrase in the massive health care law.

The high court will decide whether that phrase limits subsidies that allow millions of Americans to purchase insurance to those who live in Connecticut, 12 other states and the District of Columbia, which do not use the federal health exchange, HealthCare.gov.

Challengers say the phrase at issue in the law limits subsidies for low- and moderate-income consumers to insurance purchased through an exchange “established by the state,” like Access Health CT.

Thirty-four states declined to establish a marketplace, leaving the job to the federal government, an option provided under the ACA.

The insurance industry warns that ending subsidies for policyholders in these states would result in a “death spiral” of premium increases and market contraction.

Chris Murphy, D-Conn., said a ruling against the ACA “would be terrible” for the nation’s health insurers.

But others say the industry would weather the storm, and the ACA’s impact will be far greater on health care consumers — as many as 10 million of them in the 34 states — who would no longer be able to afford health insurance because they lost their subsidies or their premiums had risen sharply.

“An immediate or near-term elimination of federal premium subsidies would cause massive disruption in the individual market,” said a study by the American Academy of Actuaries. “Potentially millions of people would drop coverage, and the average costs of those remaining insured would soar.”

Aetna and other insurers make most of their profits from selling group policies, said Brian Wright, an insurance analyst at Sterne Agee. But he said the individual insurance market represented a good growth opportunity.

“An adverse Supreme Court decision would have some unfortunate ramifications on their long-term market plans,” Wright said.

Murphy said health insurers’ financial health has been boosted by the ACA, and that has resulted in “a miraculous conversion” on the health law that had once caused the industry much concern.

Aetna told investors earlier this year that it ended the first quarter with nearly 1.3 million purchasers of individual policies and projected the individual business would represent about 6 percent of the company’s 2015 revenues.

Most of those customers, more than 950,000, purchased their policies on ACA exchanges. Nearly all of those exchanges were in states using the federal marketplace, Aetna spokesman Matt Wiggins said. About 90 percent of those policies were purchased with the help of subsidies.

“We remain cautiously optimistic on the potential for the public exchanges to develop into an attractive growth opportunity, where we can continue to offer value to customers and generate a reasonable return for our shareholders,” Aetna President Mark Bertolini said on the company’s last earnings call.

Americans like subsidies

Aetna and other insurers, including UnitedHealthCare, have declined to comment on the King v. Burwell case, preferring instead that their trade association, America’s Health Insurance Plans, speak on the issue.

AHIP filed an amicus brief in the Supreme Court supporting the ACA . It said outlawing subsidies would destroy a careful balance that allows the ACA to work.

Under the ACA, insurers are barred from denying coverage to individuals with pre-existing health insurance. They also must implement “adjusted community rating,” which means premiums vary based only on age, geography, family size, and tobacco use. They also must offer policies that meet certain minimum coverage requirements.

In return, the ACA requires all individuals and most businesses to purchase health insurance, and it provides subsidies and other incentives to help them do so.

“These elements work together to create a viable insurance market based on broad consumer participation,” the amicus brief says.

Eliminating the subsidies would destroy the balance and result in a rising number of uninsured in the 34 states using the federal exchange, “making the situation worse than it was before Congress acted,” the brief states.

AHIP spokeswoman Clare Krusing said insurers would seek “policy changes” if the subsidies were outlawed. But she said she could not detail what those changes would be until the ruling is released.

Republican opponents of the ACA  hope the legal challenge results in total failure of Obama’s signature health care law.

But there is a concern among some of those opponents.

A recent ABC-Washington Post poll said that, by a margin of 55 percent to 38 percent, Americans believe the Supreme Court should not block federal subsidies in the states that do not operate their own health insurance exchange.

GOP lawmakers are concerned about a voter backlash if their constituents suddenly find themselves unable to afford insurance coverage.

Republicans in the House and Senate are working on plans to replace the ACA that would continue to provide subsidies until 2017. Their proposals would end federal involvement in the regulation of health insurers and eliminate the mandate that individuals and businesses purchase insurance. It would be up to states to decide whether to require insurers to meet minimum coverage standards or cover people with  pre-existing conditions.

“We need to fix health care in America, but Obamacare cannot be fixed,” said Sen. John Barrasso, R-Mont.

Murphy dismissed the GOP efforts.

“Republican plans are shifting by the minute,” he said. “But they all are anchored by one common thing: ‘Repeal the ACA.’”

 

 

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