Nearly 7.5 million Americans could face a premium increase in 2015 if the Supreme Court finds that consumers in states with a federally operated exchange are not eligible for subsidies under the Affordable Care Act. A new analysis from Avalere finds that individuals receiving subsidies in affected states could see an average increase of 255 percent in their required premium contributions, if the Court ultimately rules in favor of the plaintiffs in King v. Burwell.
"The Federal exchange generally serves low income populations in red states, so that’s where the premium increases would be concentrated,” said Dan Mendelson, founder and CEO of Avalere. “If King prevails, we expect to see virtually all stakeholders aggressively seeking alternatives to ensure continuity of care.”
Eighty-seven percent of federal exchange customers currently receive a subsidy. As a result, if the Court declares subsidies illegal in federal exchange states, average monthly premium contributions for enrollees could increase between 122 percent and 774 percent, depending on the state. Residents in Alaska and Mississippi will see the highest percentage increases in their premium contributions, if the Court rules in favor of the plaintiffs. (see Table 1)
“In the event that the Court strikes down subsidies in federal exchange states, the Administration, Congress and the states themselves will explore both short- and long-term solutions,” said Caroline Pearson, senior vice president at Avalere. “The range of potential options available to the Administration may hinge on the specifics of the ruling.”
Under the Affordable Care Act in 2015, consumers are eligible for a hardship exemption from the individual mandate if the premium of the lowest cost bronze plan available to them in their region exceeds 8.05 percent of their income.
“Loss of premium subsidies in federally run exchanges would mean that many exchange consumers will be exempt from the individual mandate,” said Elizabeth Carpenter, director at Avalere, “Moreover, because the employer mandate is tied to employees claiming a premium subsidy, it would also undermine employer responsibility requirements in those areas.”
The implications of the ruling concerning the individual mandate will have a larger impact on younger enrollees, who are less likely to be exempt from the mandate. On average, a 50-year-old individual who makes less than $46,000 will be eligible for a hardship exemption from the individual mandate. However, due to age rating differences, a 27-year-old individual will have to make less than $27,000 to receive the same hardship exemption. A complete analysis of state cutoffs for mandate exemption is available as in Table 2.
Analysis assumes consumers do not switch plans following the ruling. Loss of subsidies will be considered a qualifying event for a special enrollment period, and therefore consumers would have the option to select a less-expensive plan. However, carriers in the FFE may be permitted to terminate contracts with the exchange under certain scenarios, which could reduce coverage offerings.
While Nevada, New Mexico, and Oregon all rely on HealthCare.gov infrastructure in 2015, Avalere considers them state-based exchanges for the purposes of this analysis.
Premium increases are based on “Health Insurance Marketplace 2015 Open Enrollment Period: January Enrollment Period: ASPE Research Brief,” HHS / ASPE, January 27, 2015. The number of individuals who would be impacted by the ruling was calculated using the percent of enrollees in the federal exchange that are being subsidized (87 percent) from the latest HHS enrollment reports and total FFM enrollment (8.6M) from “Open Enrollment Week 13: February 7, 2015 – February 15, 2015,” HHS, February 18, 2015.
Individual mandate exemptions are based on Avalere’s analysis of the average lowest priced bronze plan by state, using the HHS 2015 Individual Marketplace Landscape file. Individuals are eligible for a hardship exemption if the premium for the lowest priced bronze plan in their rating region exceeds 8.05% of their income. As such, the analysis determines the income level at which the average lowest bronze plan premium in the state would exceed 8.05%. As premiums vary by income, the analysis includes statistics for a 27 year old and a 50 year old, both non-smokers.