Premiums could rise as much as 774% if subsidies are deemed illegal

High Court set to hear oral arguments tomorrow

Premiums for plans purchased through the federal exchange could increase by as much as 774% if the Supreme Court strikes down the Affordable Care Act's (ACA) subsidies to help U.S. residents purchase coverage through HealthCare.gov, according to an Avalere Health study.

Background on federal subsidies' legal challenges

This legal challenge to the ACA—the third that the Supreme Court has selected to hear over the past four years—centers on a key question: Did the law's authors intend to allow tax credits for consumers who use the federal insurance exchanges?

According to the Obama administration, the answer is yes. The defendants have stressed that the subsidies were intended to be available through every exchange, in order to help Americans sign up for coverage. A May 2012 IRS rule allows the subsidies to be used in an exchange administered either by a state or the federal government.

But the challengers argue that the text of the law is clear: They say the language of the ACA states that subsidies should only be available in states that set up their own insurance exchanges. However, just 14 states and the District of Columbia did so, while 36 states turned to the federal government to run their insurance exchange. And nearly 90% of the individuals who used HealthCare.gov to sign up for health coverage also are receiving subsidies.

The high court will hear oral arguments in the case tomorrow and will release a decision by the end of June.

What if Americans lose their ACA subsidies? One Republican senator has a plan.

If the court strikes down the federal exchange subsidies, the ruling would eliminate about $28.8 billion in subsidies to 9.3 million individuals in 34 states in 2016, according to an Urban Institute analysis.

What the study found

The study, which is based on HHS data on the ACA's second open enrollment period, found that premiums in states using the federal exchange would increase by an average of 255% if the subsidies are ruled to be illegal.

Meanwhile, nine states would see premium increases of more than 300%, including Florida and North Carolina. Alaska and Mississippi would see the largest increases, at about 449% and 774% respectively.

Avalere CEO Dan Mendelson wrote, "The federal exchange generally serves low-income populations in [Republican-controlled] states, so that's where the premium increases would be concentrated. If King prevails, we expect to see virtually all stakeholders aggressively seeking alternatives to ensure continuity of care" (Ferris, The Hill, 2/26; Avalere Health study, 2/26).

The takeaway: The Supreme Court is set to hear oral arguments tomorrow in a case challenging the legality of federal subsidies. If the court deems such subsidies illegal, premiums for plans purchased through the federal exchange could increase by as much as 774%.

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