Health insurance safe for now from fight over federal subsidies

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Consumers who purchase subsidized health insurance through markets that are run by the federal government likely have no reason to worry about a federal courts clash that challenges the legality of such subsidies, three independent health-insurance experts tell Consumers Digest. In the short term, nobody’s at risk of losing the subsidy and, in the long term, it’s unlikely that the U.S. Supreme Court would abolish the subsidies, the experts say.

The conflicting court decisions were made July 22, 2014. A three-judge panel for the U.S. Court of Appeals for the District of Columbia Circuit ruled that the government can’t subsidize insurance that’s purchased through so-called federal exchanges as part of the Affordable Care Act. On the same day, the U.S. Court of Appeals for the Fourth Circuit in Richmond, Virginia, ruled that such subsidies were legal.

The conflicting outcomes triggered an avalanche of news reports and analysis, much of which centered on speculation that the Supreme Court would be asked to resolve the issue. If the Supreme Court were to find the subsidy provision illegal, 4.5 million people in 36 states who receive a federal tax credit to help them to pay for insurance that’s purchased through the federal exchange no longer would receive subsidies. The subsidies are distributed in the form of discounts to your monthly insurance premium or as part of your annual federal income-tax refund check.

However, neither a Supreme Court case nor the loss of subsidies likely will happen, says Elena Marks, who is a health-care-policy expert at the James A. Baker III Institute for Public Policy at Rice University. Marks believes that the District of Columbia Circuit decision will be reversed when all 11 members, seven of whom were appointed by a Democratic president, are likely to rule on a planned Department of Justice appeal. On July 22, 2014, DOJ said it would request such a hearing.

Such a reversal could come as early as fall 2014 and would create a unified opinion among federal courts, which means that the Supreme Court would be reluctant to agree to consider the issue, Marks says. “I don’t believe that subsidies provided will be recouped, and I would advise people to continue to purchase subsidized plans,” she says.

Subsidies are available to help lower- and middle-income people to afford health insurance. If you earn up to four times the federal poverty level (which is $11,490 for an individual and $23,550 for a family of four), you qualify to have the amount that you pay for insurance premiums reduced. For example, let’s say you earn $12,000 per year ($1,000 per month) and your monthly insurance premium is $200. Your monthly contribution to your premiums is capped at 2 percent of your income ($20), and the federal government subsidizes the remaining balance ($180).

The conflict centers on language in a provision that says subsidies will be extended to low-income people who buy insurance “through an exchange established by the state.” The plaintiffs argue that the language means that only low-income people who purchase insurance in the 14 states that run their own health-insurance exchanges should qualify for federal subsidies. People who live in the other 36 states purchase insurance through the federal exchange rather than a state exchange, which means that they shouldn’t receive subsidies, the plaintiffs say. The District of Columbia Circuit panel agreed with the plaintiffs, and the panel’s 2-1 vote fell along party lines, with two Republican-appointed judges siding with the plaintiffs.

Two other experts also believe that it’s unlikely that the Supreme Court would outlaw federal subsidies for health insurance. Linda Blumberg, who is a senior fellow at economic and social policy research center Urban Institute, says the court rulings change nothing for consumers. Alice Weiss, who is a program director at National Academy for State Health Policy, believes that subsidies “will continue to remain secure.”

Two other pending federal court cases seek to have subsidies declared illegal. Those cases are in Indiana and Oklahoma. Marks says it’s unclear when a ruling would be made in either case or what the likely outcome of either case would be. If either case resulted in a ruling that declared such subsidies to be unconstitutional, the Supreme Court would have a new reason to agree to decide the issue, Marks says. Under such a scenario, Marks believes that a Supreme Court ruling likely wouldn’t happen until at least June 2015.

– K. Carlson