During the first week of March, the Supreme Court is set to hear the oral arguments in a potentially game-changing legal challenge to Obamacare.
The case, King v. Burwell, calls into question whether people who sign up for healthcare insurance through the federally run healthcare.gov insurance exchange should be able to receive subsidies to pay for their insurance, based on the technical wording of the Affordable Care Act. How the Supreme Court rules in this case could have big implications for millions of Americans, so we asked our Motley Fool experts for their opinion on whether Obamacare can survive a ruling that would eliminate healthcare.gov subsidies. Read on to learn what they think.
Dan Caplinger: Many have argued that King v. Burwell could mean the end of Obamacare, because a finding for the plaintiff would mean that only those who signed up for insurance coverage under state-established health-insurance exchanges would be eligible for tax-credit subsidies, leaving residents of states that chose not to establish their own health-insurance exchanges without the right to collect those subsidies.
Most political analysts have noted that even if participants in the federal marketplace are ruled not to have access to subsidies under the Affordable Care Act as enacted, those who oppose Obamacare run a huge political risk if they simply accept victory. With all of Obamacare's other provisions remaining intact, residents in states without their own exchanges could blame everyone.
As a result, what's likely to happen is that lawmakers will reach a compromise that falls short of an outright repeal of Obamacare but builds some flexibility into state insurance exchanges. Features such as offering funding to states to award premium credits using their own eligibility guidelines could be a starting point, as could allowing broader arrays of health-insurance plans, such as high-deductible health plans. Obamacare might look different following a Supreme Court victory for its challengers, but it's unlikely to disappear entirely.
Todd Campbell: At the heart of the King v. Burwell case is whether or not the ACA, as written, allows for government subsidies for people signing up for health insurance coverage through healthcare.gov. The part of the law in question says subsidies are OK for insurance bought "through an exchange established by the state."
If the Supreme Court decides that line means that subsidies can be offered only to people in the 13 states that use their own exchanges, then millions of healthcare.gov enrollees will have reason to march on D.C. According to The New York Times, 4.5 million of the 7 million who signed up for health insurance through the exchanges during the first open enrollment period did so through healthcare.gov, and of them, roughly 90% qualified for a subsidy.
Since the Department of Health and Human Services reports that 11.4 million people signed up for health insurance through the exchanges this year, including 8.6 million who did so through healthcare.gov, the stakes are getting even higher. The sheer number of people who could be affected by this decision suggests to me that if the court invalidates healthcare.gov subsidies, then states will be forced to create their own exchanges or, at a minimum, build their own front door to healthcare.gov to comply. In any case, I don't believe Obamacare will disappear completely.
Cheryl Swanson: I agree with how both Dan and Todd gamed out the effect of a possible Supreme Court gutting of Obamacare subsidies. A major public outcry would follow. Millions of families would lose access to affordable healthcare, and enormous public pressure would be put on state officials to set up exchanges, or otherwise reach a compromise.
But I'll play devil's advocate here and point out that such a compromise won't be easy to accomplish. States could cobble together their own exchanges, but creating exchanges is not child's play. Both timing and financing is problematic -- the final deadline for states to apply for federal funding to establish exchanges has passed. In addition, there is significant political risk. Obamacare's opponents have already shown that they're seriously committed to resisting the temptation of federal money. Case in point: nearly half of the 50 states refused to expand Medicaid, even though the federal government would cover almost all costs.
If subsidies are eliminated, the Urban Institute has estimated that two-thirds of those affected would drop coverage. The healthier people would do so first, leading to a very expensive risk pool full of sicker -- and therefore more expensive -- beneficiaries.
Healthcare insurers wouldn't be the only industry possibly facing shattered balance sheets. The brunt of the storm could well fall on acute-care hospitals. Put simply, when patients have insurance, their hospital bills get paid. Shutting off the federal exchange spigot could be particularly disruptive to the nation's largest hospital provider, HCA Holdings, Inc. (NYSE:HCA). In fact, HCA has become so concerned about possible fallout that it has joined the fray. The company filed a legal brief in King v. Burwell, saying that more than 88% of its facilities are in states that would be cut off from subsidies.
Whatever the high court decides, I wouldn't bet against healthcare stocks -- there are too many other positive factors at play. But I wouldn't go to sleep on them, either.