What Will Happen If Supreme Court Cuts ObamaCare Subsidies?

By Jane M. Orient, CP Op-Ed Contributor Tuesday, March 10, 2015

The Obama Administration was apparently shocked when the U.S. Supreme Court agreed to hear the case of King v. Burwell, which challenges insurance subsidies flowing through federal Exchanges. The Affordable Care Act (ACA) clearly states that subsidies flow only through Exchanges established by States.

This, according to MIT economist Jonathan Gruber, was meant to be a deal the States couldn't refuse, to "encourage" them to create an Exchange. But more than 30 of them did refuse.

The Administration, however, had a ready fix: the IRS just wrote a rule that allows the subsidies to flow anyway, arguing that that must be what the law really meant.

It reminds me of Gilbert and Sullivan's operetta Iolanthe. There was a most inconvenient law on the books: "The fairy that marries a mortal dies!" It was terrible enough that the beloved Iolanthe had broken the law. But ultimately when all the fairies marry members of the House of Peers, what is the Fairy Queen to do? "I can't slaughter the whole company!"

The Lord Chancellor comes to the rescue. "The subtleties of the legal mind are equal to the emergency. The thing is really quite simple—the insertion of a single word will do it. Let it stand that every fairy shall die who doesn't marry a mortal."

The Obama Administration is assuming that the Court will act as Lord Chancellor, or else the Republican Congress will do so, and therefore has not bothered to warn anyone of the possible loss of subsidy.

Senator Ben Sasse (R-Nebraska) is concerned that patients will suddenly lose their hemodialysis or chemotherapy, and has suggested a COBRA-like patch. In fact, almost all patients with end-stage renal disease are on Medicare. And while ACA caused millions to lose a plan they liked, some while on chemotherapy, ACA plans can't be cancelled when you get sick. Subscribers will, however, have to start paying the entire premium—which is far less expensive than chemotherapy.

The losers will be insurance companies. Remember, subsidies don't go to sick people. They all go to the insurer. Some insurers will be stuck paying for 30 days of treatment if the subscriber defaults on premiums, and providers will be forced to give treatment without pay for the remaining 60 days of the grace period. A lot of them may simply go out of business.

Healthy people will drop coverage that is unaffordable without the subsidies. Insurers who lobbied for ACA will lose their government-guaranteed business.

This is the recipe for the "death spiral." As low-risk people drop out, premiums are driven higher and higher. There will be more uninsured people. They will likely ask themselves why they should throw fistfuls of money out the window month after month for treatment they don't need—and are increasingly less likely to get if they do need it, as supply dries up.

As they lose their "insurance" card, however, people are likely to notice that they get to keep the premium money—and that it is far less expensive to buy care directly than to funnel money through the predatory, ravenous third-party system.

But what about the "shared responsibility payment"? Won't people have to pay that, in return for nothing, not even a ticket to stand in line? As premiums go up, they become more unaffordable, so more and more people are exempt from the penalty/tax. And by the way, if subsidies are unavailable in your State, businesses there are not subject to the job-killing employer mandate.

Yes, King v. Burwell could bring much pain—mostly on crony capitalists. It could mark the beginning of a most beneficial medical cost deflation and correction of massive resource misallocation.

Instead of having the Lord Chancellor "fix" a terribly destructive law, how about learning from history as in Iolanthe. Things would be better if "the House of Peers withholds/ Its legislative hand/ And noble statesmen do not itch/ To interfere with matters which/ They do not understand."

The tangled mess of mandates and regulations, by which ObamaCare makes care and insurance unaffordable, needs to be repealed. Then Congress can start on repealing other laws, especially the discriminatory tax code, which led to the mess that ACA was supposed to fix.

ane M. Orient, M.D., executive director of Association of American Physicians and Surgeons, has been in solo practice of general internal medicine since 1981 and is a clinical lecturer in medicine at the University Of Arizona College Of Medicine.