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The Dose - JK Wall

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

If Supremes gut Obamacare’s tax credits, the fixes are easy. But the politics are hard.

June 12, 2015

The question came up yet again.
 
While speaking Thursday to a group of Indianapolis alumni of my alma mater, DePauw University, I was asked what I think will happen in the King v. Burwell case.
 
You know, the one where the Supreme Court will decide if the nearly $1 billion in Obamacare subsidies that helped nearly 200,000 Hoosiers buy health insurance this year are actually legal.
 
I’ve been asked this question several times just in the past two weeks, as those in the health care world brace for what could be the chaotic aftermath of the court’s decision. One study suggests Hoosiers that received Obamacare’s tax credits would see a 271 percent spike, on average, in their insurance premiums if those credits disappeared.
 
I’ve resisted writing about it because the national media has been all over this. Quoting people far more expert than I am.
 
But here’s what I told the DePauw folks who gathered at Harry & Izzy’s downtown to hear me blather:
 
I give a slight edge to the chances that the Supreme Court does strike down the tax credits. I am not a legal expert, and I am well aware that plenty of folks, including President Obama, think the whole case is ridiculous, a slam dunk of legal interpretation.
 
Of course, many folks said the same thing about the case challenging the individual mandate in Obamacare—and then watched all their arguments lose before the court. The individual mandate survived in 2012 only because Chief Justice John Roberts interpreted the law in a way neither the Obama administration nor the rest of the justices had.
 
My bet is that lightning doesn’t strike twice for the pro-Obamacare arguments. (My philosophy professors at DePauw would tell me that’s an example of the Monte Carlo fallacy; but that’s all anybody is doing these days in making predictions—just rolling the dice.)
 
If the tax credits are invalidated, there are easy ways for the Obama administration to issue new regulations that could fix the problem.
 
Just this week Pennsylvania and Delaware developed work-around plans that, if approved by the federal government, would allow them to hire the federal government on a contract basis to let it those states use the very same website and call center the states are relying on now. But structuring the relationship that way would allow them to have a “state-based exchange,” which would once again qualify those states’ citizens for Obamacare’s tax credits.
 
“I think that’s a pretty easy workaround,” Thomas Scully, director of the Centers for Medicare and Medicaid Services during the George W. Bush administration, said about the two states’ plans. He added, “The administration has a lot of flexibility, potentially, to define a state exchange.”
 
Congress also could remedy the problem quite easily, as President Obama pointed out this week in his speech on the case. He said, “Congress could fix this whole thing with a one-sentence provision."
 
Of course, Congress could have fixed this “drafting error” before the law was passed in early 2010 or at any time since then. But it didn’t because of one thing: politics.
 
And the politics of this situation are extremely difficult for both sides.
 
President Obama doesn’t want to see 6.4 million Americans lose tax credits for health coverage. But neither does he want to re-open the mammoth health care reform debate that was extremely contentious even when his own party had a filibuster-proof majority in the Senate. From his point of view, reviving the debate with a Congress now controlled by Republicans could jeopardize even more parts of his health reform law.
 
So he might have to let the 6.4 million folks lose their tax credits in hopes that the American people blame the Republicans in Congress, forcing them to reinstate the tax credits largely as they were.

Or Obama could rely on the mostly Republican governors and legislatures that lead the states that chose to let the federal government run the health insurance exchange in their states, rather than starting one themselves

The Obamacare law still gives them that choice—no matter what the Court decides. So even if the Court struck down the subsidies for federally-run exchanges and then the Obama administration issued new rules making it super-easy for states to have a state-based exchange, each state would still have to opt-in to those new regulations.

But that would be tough politically for most of the states affected by the Court’s decision: 29 of the 36 states that decided to use the federal Obamacare exchange are led by GOP governors. Only two of those have a state-federal partnership to run the exchange, which might still qualify for tax credits even if the Supreme Court invalidates tax credits in exchanges run entirely by the federal government.

When the Supreme Court gave states the option to reject Obamacare’s expansion of Medicaid eligibility (largely paid for by the federal government), lots of Republican-led states did just that.
 
To date, there are 3.4 million people uncovered by Medicaid because 19 of these Republican-led states have rejected Obamacare’s money for an expansion of that program, according to data collected by the Kaiser Family Foundation.
 
These governors may not like high numbers of the uninsured, but they know lots of the voters that got them elected hate Obamacare and will mutiny if “their guy” gives in to it. The same pressure would apply on the decision to run a state-based exchange.
 
In Indiana, Gov. Mike Pence accepted the Obamacare Medicaid money, but only once the Obama team allowed him to use it to expand the consumer-driven Healthy Indiana Plan instead. I told the DePauw alumni I could see Pence making a similar request in these circumstances.
 
The trouble is, it took two years to come to a deal on the Healthy Indiana Plan expansion. I don’t think states would have that much time to find a fix before the tax credits, if determined illegal by the Court, stop flowing.

And besides, 2016 is an election year, where both Republicans and Democrats will want to appeal to their base voters—not pass a high-profile compromise. That could very well mean that the nearly 200,000 Hoosiers that received tax credits this year will go without them for 2016.

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