Kansas State University


Issues in Health Reform

Month: July 2014

ACA Tax Credits may be taken away by courts

We will all be hearing lots on the news in the next days and weeks about some conflicting rulings regarding one important aspect of the Affordable Care Act…the premium tax credits and tax subsidies that help low income families afford their new health insurance policies.  It is expected that the Supreme Court will be the ultimate arbiter of this, especially since there are conflicting lower court rulings.  The NY Times piece covers the issue well.

In a nutshell….

1.  some states have federally facilitated Exchanges/Marketplaces (including Kansas), and others went ahead and fully designed their own Exchanges.
2.  The plaintiffs have argued (now successfully in at least one ruling) that the original law was written to allow tax credits to consumers purchasing insurance policies through state Exchanges, not through federally facilitated state Exchanges.
3.  The nuance being argued is whether or not Exchanges that were set up by the feds BUT IN STATES and with insurance policies sold in those states are the same as state Exchanges.  One court says yes, another says no.  Most pundits say the law was ambigious on this regard so it is up to the administrative body, in this case, the IRS, to interpret  and put into operation the law.  Others had said in the past that the writers were really trying to push the states to setting up their own Exchanges and hence, denying consumers the tax credit in those states that relied on the feds to set up the Exchange, ergo a presumed incentive to go with the state Exchange.  When fewer than half of the states felt ready to design their own Exchanges (and some chose not to for seemingly political reasons), then the administration asked that this aspect be interpreted more fully to include all Exchanges.  This will certainly be an interesting court battle to watch…but one with severe consequences for many Kansans and other Americans.

IF the Supreme Court holds that consumers are eligible for tax credits and subsidy cost sharing only Exchanges set up by the states this will negate tax credits for those in 36 states, including Kansas.

57,000 Kansans signed up for policies in the Kansas Marketplace.  National figures show over 80% of those consumers have been eligible for tax credits.  Some are only paying $20/month for policies that would otherwise cost approximately between $200-$600 month.  One can quickly see how the current rulings negating the ability of the IRS to implement tax credits would result in having those lower income families once again unable to afford insurance.

Note:  people may qualify for subsidies if they have incomes of up to $45,960 for individuals and up to $94,200 for a family of four.  The Congressional Budget Office estimates that subsidies this year will average $4,400 for each person who receives a subsidy.

SCOTUS decision on birth control increases inequities between employer based and Exchange health insurance policies

A less talked about impact of the Supreme Court ruling about employer based insurance and birth control coverage is the widening gap of freedom of choice between those locked into employer based insurance and those able to purchase insurance available in the Marketplace/Exchanges.

In the past, most employer based insurance has been among the most comprehensive, especially compared to plans many individuals were able to afford on their own in the private market.  Because of ACA however, now all plans cover at minimum the same set of essential benefits…until this ruling.  Now some employers will be able to limit coverage.  (Note, some grandfathered plans aren’t yet up to date on all preventive benefits but they are set to sunset as soon as those plans make a change.)

So can affected employees shop in the Marketplaces for coverage they may prefer? Yes, but because they have an employer based option they are not eligible for tax credits if they do so. These workers would basically be turning down the employer-supported plan and going solo on costs.

Giving less freedom of choice to workers was rational within the broader intent of ACA to expand, rather than supplant, the current insurance market that relied heavily on employer based plans.  To keep the balance weighted with employers as major providers of insurance, there is both the large employer mandate (delayed until January 2015) and the rule that makes workers who are offered affordable and adequate health insurance through their employer ineligible for the tax premium credits in the Marketplace.

Therefore, the SCOTUS decision intensifies this inequity between those who can freely go to the Exchanges and those who are locked into employer based plans.  This becomes acute as women may now have even more reason to want to make their own choices as to their best insurance options.  Women who would prefer their plans to cover a full range of contraceptives will be at a financial disadvantage to those without employer based options who get premium assistance.  Over 80% of people purchasing Marketplace policies qualified for such assistance.