King v. Burwell: What's it Really Mean for the Industry?

The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article.

The Supreme Court will hear arguments this Wednesday about the Affordable Care Act’s (ACA) provision that low income individuals who enroll for coverage through an insurance exchange are eligible for a tax credit to offset part of their premium. At issue is whether these credits are accessible only to those who enrolled through a state-run exchange per the ACA’s explicit provision, or also to those who enrolled through the federal marketplace, Healthcare.gov, as well.

The legal arguments boil down to this:

Opponents will argue that the letter of the law should prevail, disclaiming the government’s position that the ACA’s terminology “established by the state” is not a “term of art” and therefore imprecise. They will also assert that the law explicitly allows the U.S. Department of Health and Human Services (HHS) to set up exchanges “directly or through agreement” thereby giving the federal government power to set up an exchange with or without a state’s permission/invitation.

Supporters of the law will argue that the intent of the law was that all qualified citizens who enroll through health exchanges, whether run by states or the federal government, are eligible for tax credits, and the undoing would be debilitating to the health system.

Here are the facts:

  • The ACA says tax credits are available only through “exchanges established by the state” (Title 1, Sections 1321)
  • 87% of the 8.8 million who enrolled though Healthcare.gov, the federal exchange, believe they are eligible for tax credits to offset their premiums (the average subsidy will cover 89% of their premium)
  • The Supreme Court will issue its opinion in June after hearing the arguments.
  • Unless Congress intervenes, these subsidies will stop within 25 days or less.

What will happen? How will the court decide? It’s anyone’s guess, but if it sides with the plaintiffs, the repercussions are clear:

  • The millions who think they qualify for subsidies will lose coverage, since for most the average $4,700 tax credit is the only way it’s affordable.
  • Providers – doctors, hospitals, labs, pharmacies – will lose $60 billion in revenues expected or already billed, meaning bad debt will increase and access for many seeking care will decrease.
  • Health insurers will scramble to collect from those who are able to pay their full premium, but in all likelihood lose most throwing the individual plan market (retail) into chaos.
  • State legislators and their governors in the 37 states that defaulted to Healthcare.gov will face angry enrollees seeking a remedy.
  • And the issue of health reform will be on the table again as campaign 2016 heats up, and the ranks of the uninsured swell and health costs become more burdensome to individuals, families and employers.

If it decides for the government, we’re not out of woods either…

  • The ACA’s transition from volume to value-based incentives via medical homes, bundled payments, accountable care and value-based purchasing is off to a bumpy start. While the end game is clear—replacement of fee for service payments with performance-based incentives – the mechanisms to do it well and the needed changes providers must make are a huge obstacle. Clinically integrated networks that are capable of assuming financial and clinical risk are achievable, and Medicaid, Medicare, private plans and employers insist that’s the goal, but it’s not something done overnight, especially when providers feel they have to operate in a fee for service world and value-based world simultaneously.
  • Access to care for the uninsured is reduced but it’s still an issue. The combination of increased Medicaid enrollment and subsidized coverage reduced our uninsured population by 20 million, but that leaves 12% without coverage of any kind. We pay for their care, whether coordinated or not, covered or not. And their numbers are likely to increase as employers drop coverage, and families opt to pay the penalty and take their chances.

What intrigues me the most about these scenarios are the innovators who see healthcare uncertainty as an opportunity, regardless of the court’s decision. CVS Health defines health and wellbeing as its cause, expanding its 970 retail clinics by 500 in the next two years and empowering its pharmacists and their teams to manage health. TeleDoc and others see leverage though distance medicine. Health systems believe in taking on risk rather than avoiding it, and investors are making big bets in technology-enabled care. There’s no shortage of enthusiasm about the “new normal” among these and others who translate the court’s deliberation as no more than a wrinkle to be managed.

My hunch is that regardless of the court’s decision about subsidies, healthcare will be a vibrant industry for the innovators who address three realities:

  • The value proposition in the health system will be built around its end users, consumers. Its focus will be on health, not just sick care. There are more older than 65 among us than younger than 15. Life expectancy is increasing and household discretionary spending under pressure. The future state of the system will incorporate alternative health and tools to empower individual choice. Whether insured or not, employers are likely to carefully exit their patronage of health benefits in favor of high deductible plans that force individuals to care for themselves. And government will follow the same path in Medicare and Medicaid—both are “individual insurance” sectors, but neither has effectively equipped their enrollees to be responsible risk takers. The opportunity is much broader than “patient care”; it’s about consumer engagement in all aspects of their health.
  • The scalability of our delivery system will be key. The five biggest health plans control 33% of U.S. premiums; the four largest airlines control 87% of domestic passenger miles; six of the 6,509 banks control almost 45% of assets. By contrast, hospitals, physicians and other providers are fragmented and unnecessarily wasteful. “Super systems” will emerge with wider capabilities and a stronger value proposition for individuals seeking health services. The race to efficiency and effectiveness seems destined to address “system-ness” that extends well beyond local acute, outpatient and professional services and outsourcing of administrative functions.
  • Cost will be the issue: at the end of the day, the costs associated with the delivery of services will matter even more than today. Prescription drug costs will be integrated into bundled payments and capitated contracts. Health insurance administrative costs will be pressured to lower levels and hospitals forced to adapt to reference pricing. Innovation in reducing health cost that’s unconstrained by conventional thinking will be a prime opportunity for those able to think outside the box. Reducing per capita health costs while optimizing safe and effective care delivery will be front and center.

Starting Tuesday, folks will line up at the Supreme Court to hear Wednesday’s arguments. The court will consider the 50-plus amicus briefs filed and amidst great apprehension voice its decision as June ends. The King v. Burwell decision is a big deal, but it’s neither a death blow to the industry nor a step toward “government-run healthcare.”

It’s another chapter in the book about how our big, complicated, expensive, non-transparent “system” of care in our country adapts to change. And that book is still being written.

Paul

Louise Radnofsky, Stephanie Armour, “GOP Lawmakers Seek Short-Term Tax Credits Extension,” Wall Street Journal, February 26, 2015; Phil Gramm, “A Simple Cure for Obamacare: Freedom,” Wall Street Journal, February 23, 2015; Robert Pear, “Congress Told Administration has no Remedy for a Ruling Against Health Law,” New York Times, February 24, 2015; Lisa Schencker, “Challengers avoid legal standing issue in King subsidies case,” Modern Healthcare, February 21, 2015; “GOP Claims Paper Shows Fed Aides’ Preps for Health Law Loss,” New York Times By Associated Press, February 26, 2015; Merrill Goozner, “Round 2: No Win for the ACA,” Modern Healthcare, February 14, 2015; Sandhya SomashekharJason MillmanLena H. Sun, “At least 6 Republican states revisit their stance of resisting Obamacare,” Washington Post, February 27, 2015;Eliza Gray, “A Different Prescription: The Pharmacist running CVS wants his drugstores to become your doctor’s office,” Time, March 2, 2015

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

©2015 Navigant Consulting, Inc.