Eliminating Federal Marketplace Subsidies Will Increase Costs Up to 47%

With less than 2 months until the Supreme Court hears arguments for King v. Burwell and decides on the fate of subsidies for health plans purchased on the federal insurance exchange, experts are all making their predictions about how a decision siding with the plaintiffs could affect the viability of the Affordable Care Act (ACA).

Mostly, studies are finding that without the subsidies, the insurance markets in states using the federally facilitated Marketplace will become wildly unstable.

A RAND study found that enrollment in the individual market could be reduced by more than 9.6 million. Authors Evan Saltzman and Christine Eibner modeled the likely effects of eliminating subsidies for people purchasing plans on the federal Marketplace in the 34 states that did not set up their own state-run exchanges.

“The disruption would cause significant instability and threaten the viability of the individual health insurance market in the states involved,” Ms Eibner, the study's senior author and a senior economist at RAND, said in a statement. “Our analysis confirms just how much the subsidies are an essential component to the functioning of the ACA-compliant individual market.”

Enrollment in the individual market could drop by 70% while premiums rise by 47%. According to the study, the increased costs would mean a $1610 annual increase to $5060 a year for a 40-year-old nonsmoker with a silver-level plan.

A report from the Urban Institute was slightly more optimistic in its estimates of the effect, but still expects the loss of subsidies in the federally run exchange would large cost increases and a sharp increase in the number of uninsured individuals.

A win for the plaintiff in King v. Burwell would eliminate $28.8 billion in tax credits and cost-sharing reductions in 2016 for 9.3 million people. However, authors Linda J. Blumberg, Matthew Buettgens, and John Holahan, estimate the number of uninsured would increase by 8.2 million. Just 3.4 million people would remain in the ACA’s marketplaces.

“If tax credits and cost-sharing reductions are eliminated, there will also be indirect effects,” they wrote. “The mix of individuals enrolling in nongroup insurance would be older and less healthy, on average.”

The Urban Institute’s study expects premiums would increase by 35%, bringing the average premium per individual to roughly $5600, up from $4100.