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Health exchange subsidy ruling by Supreme Court may spur action in Congress

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A U.S. Supreme Court decision striking down premium subsidies for millions of people obtaining health insurance through the federal exchange could result in the first major bipartisan congressional effort to change the health care reform law.

Striking down the subsidies “may be what forces Democrats and Republicans to forge a deal,” said James Klein, president of the American Benefits Council in Washington. If the court rules against the federal exchange subsidies, “this could be a seminal event.”

In return for Republican agreement on language in the Patient Protection and Affordable Care Act to clarify that federal premium subsidies are available to the lower-income uninsured in every state — regardless if health insurance exchanges are state-run or federally operated — Democrats may be open to changes sought by businesses groups that Republican lawmakers could advance, Mr. Klein said.

Those changes could include eliminating a 40% excise tax on costly health plans mandated by the reform law, easing reporting requirements and boosting the definition of full-time employees under the law to something more than the current 30-hour per week definition.

Defining a full-time employee is critical for certain employers, especially retailers, which frequently do not offer health insurance to employees working less than 35 or 40 hours a week. The penalty this year is $2,000 for each full-time employee for employers that do not offer coverage to at least 70% of full-time workers, rising to 95% of in 2016 and succeeding years.

But a bipartisan accord on changes to the law, assuming the court strikes down the subsidies, is far from certain.

“Reaching an agreement on changes in the current political climate would be tough,” said Gretchen Young, senior vice

president of health policy at the ERISA Industry Committee in Washington.

Others, though, are more optimistic about lawmakers hammering out an agreement to continue the subsidies to eligible enrollees in the federal exchange as part of deal for changes to the reform law.

“There would be only a small chance of nothing happening because no one would win,” said John Barkett, director of policy affairs in Arlington, Virginia at Towers Watson's & Co.'s private health insurance exchange, OneExchange

The litigation was triggered by 2012 IRS rules that authorized federal premium subsidies to eligible lower-income individuals obtaining coverage in both state and federal exchanges. Opponents of the IRS rules say the health care reform law clearly limits premium subsidies to those obtaining coverage in the state exchanges.

The Obama administration, though, contends that the intent of the law is to make the subsidies available in both state and federal exchanges. The federal exchange was set up by the Department of Health and Human Services to offer plans to individuals living in states that declined to do so.

Currently, 13 states and the District of Columbia have established exchanges. According to HHS, 2.8 million people opted for plans in state exchanges during the 2015 open enrollment period, which ended last month.

The state exchanges, though, are dwarfed by the federal exchange, which operates in 37 states. More than 8.8 million individuals chose health plans in the federal exchange and the availability of federal subsidies slashed premiums for millions of those enrollees. According to HHS, 87% of those choosing plans in the federal exchange qualified for a federal premium subsidy, which are available to those with incomes between 100% and 400% of the federal poverty level (see chart). The average premium subsidy was $263 a month, with 55% of enrollees paying $100 a month or less for coverage after the subsidy.

If those enrollees were to lose those subsidies many would not be able to afford the full premium and would again become uninsured. That would hit hospitals hard, as they would face a surge of uncompensated care costs, which they likely would pass on to insurers and employers through higher charges. In addition, insurers providing coverage in affected exchanges could be hit hard if those remaining in the exchange are the heaviest users of heath care services.

As a result, at least as an interim step — if the high court strikes down the subsidies — lawmakers might agree to continue the subsidies in the affected states for a certain period while lawmakers tried to hammer out a longer-term approach.

“Doctors, hospitals and businesses would cling to their congressional representatives and say, 'You need to fix this,' ” Towers Watson's Mr. Barkett said

Sen. Ben Sasse, R-Neb., said in a television interview prior to the Supreme Court oral arguments that lawmakers would “need

to offer transitional temporary relief” to those receiving premium subsidies.

“You could see a patch,” Mr. Barkett said.

But if the high court upholds the IRS' 2012 rules authorizing premium subsidies in federal and state exchanges, the status quo is almost certain to continue with Republicans trying to repeal or make major changes to the law while Democrats and the Obama administration oppose those actions.

“Republicans will be mad and will pursue strategies to try to undo the law,” Mr. Klein said.

Striking down premium subsidies in the federal exchange could have another negative effect on some employers' strategies: eliminating coverage for pre-Medicare eligible retirees. The health care reform law opened the door to such a strategy with lower-income retirees becoming eligible for federal premium subsidies.

But if the Supreme Court knocked out subsidies in the states using the federal exchange, employers that eliminated or plan to eliminate early retiree coverage “would be scrambling on what to do,” said Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington.

“Employers would have to rethink their strategies when it comes to early retirees,” Mr. Barkett said.