DID GOP SHOOT ITSELF IN THE FOOT WITH OBAMACARE CASE?

By James Surowiecki

The New Yorker

A few days after the midterm elections, the Supreme Court announced that it would hear King v. Burwell, a challenge to the Affordable Care Act in which the plaintiffs are arguing that people who live in states which have not set up their own health-insurance exchanges—and who therefore find their insurance through the federal exchange, Healthcare.gov—are not eligible for tax credits that the law provides. 

These people are currently receiving subsidies, but if the plaintiffs win those subsidies will disappear. While victory for the plaintiffs once seemed utterly improbable—it was generally accepted that Congress intended for the subsidies to be available, and the entire suit is based on a phrase that’s often described as a typo—getting a hearing before the Court suggests that, at the very least, they now have a chance. 

Republican politicians are, as of now, gleeful at the prospect of the Court delivering a blow to Obamacare. But, once the economic and political consequences of those disappearing subsidies kick in, Republicans could well end up wishing King v. Burwell had never seen the light of day.
The lazy description of King is that if the plaintiffs win it could “scuttle” Obamacare. 

It can’t. 

Even if the Court finds for the plaintiffs, the rules and regulations that Obamacare put in place will remain intact—insurance companies will still have to accept all applicants, without regard for preëxisting conditions, and they’ll still be prohibited from charging people with those conditions higher prices. And the tax increases that fund the subsidies and the cost-saving initiatives in the law won’t go away, either.
What a victory for the plaintiffs in King would do is create two classes of citizens when it comes to Obamacare. For people who live in one of the fourteen states that have set up their own exchanges, like California and New York, things will remain as they are now. 

Residents of those states will continue to be eligible for those federal health-insurance subsidies, depending on their income, which means, for most of them, that insurance will be quite affordable. And, because the subsidies make insurance so affordable, lots of healthy people (meaning mainly young people) in these states will continue to buy insurance, with the result that the risk pools in these states will be more balanced and not overloaded with people who are older or who are sick. That will help to hold down price increases in those states in the years ahead.
By contrast, life is going to get much harder for people who live in states that have not yet set up their own exchanges. They’ll no longer be eligible for the subsidies, which means that many of them will have to pay hundreds of dollars more a month if they want to stay insured. Many of them won’t be able to afford that, which means they’ll return to being uninsured. 

And the problems won’t end there. Plenty of healthy, young people will decide to go without insurance, gambling that they won’t get sick. 

As a result, the risk pools in these states will be dominated by sick people (who will try, at all costs, to remain insured). Insurance companies will respond by raising the price of insurance to try to cover their costs, and that will drive more healthy people out of the market, leading to more price hikes, and so on. What these states may end up facing, in other words, is the insurance “death spiral” that the individual mandate and the subsidies were designed to avert.

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