Friday, March 6, 2015

Insurers’ Biggest Fear: A Health-Law Death Spiral

Supreme Court decision on tax credits could drive up premiums in some states
As the Supreme Court hears arguments on Wednesday in the latest challenge to the Affordable Care Act, health insurers are struggling to prepare for a decision that could unravel the marketplaces created by the law.
The ruling could come in June—but insurers must make regulatory filings before then about their 2016 plans. Utah’s Arches Health Plan, for one, says it may propose an array of insurance product designs this spring. Then, depending on what the court decides, the insurer would be poised to drop some of them before they’re finalized with regulators and offered to consumers. The insurer may also come up with two different sets of rates for next year, one for each potential court outcome.
“We’re hedging our bets right now,” says Ferris W. Taylor, chief strategy officer.
The Supreme Court case focuses on federal subsidies that help lower-income consumers purchase plans. The plaintiffs argue that these tax credits aren’t authorized by the law in states where the federal government provides the online insurance exchange—which total as many as 37. Avalere Health, a consulting firm, estimated that around 7.45 million people could lose the federal financial help if the court rules against the subsidies.
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Without the tax credits, insurance-industry officials say, the individual insurance markets in those states are likely to start collapsing, as many people drop coverage they can no longer afford, leaving only those less-healthy consumers who value insurance because they’re likely to need care. That would drive up premiums, because insurers would raise rates to cover the costs of this smaller, sicker pool. Then even more people would likely refuse the ever-more-expensive coverage.
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