What is the King v. Burwell case about?

The Affordable Care Act (ACA) requires that most individuals purchase health insurance or pay a penalty—this is the "individual mandate" that the Supreme Court upheld in its earlier decision in 2012. To make insurance premiums affordable to lower-income individuals, the ACA also makes subsidies available through the exchanges to qualifying individuals when they purchase their plan.  

The ACA encourages the states to set up their own exchanges. But if a state is unable or unwilling to set up exchange, the federal government steps in and sets one up for the state. However, the section of the ACA that establishes the formulas for subsidies offered to lower-income individuals purchasing plans on the exchanges says that subsidies will be paid through "an Exchange established by the State." Does this mean that subsidies can only be offered on exchanges that were set up by a state? That is the question that the Supreme Court has been asked to decide in King v. Burwell.  

What will be the impacts of the Supreme Court's decision?

In the event that the Court decides that subsidies can be paid only through the state-based exchanges, individuals living in the 30-plus states that have federally run or federally supported exchanges could lose their subsidies, unless the Congress or the affected states take action.  

Many people will stop buying health plans on the exchanges in the affected states because, without the subsidies, they will not consider insurance affordable anymore and they will not be subject to the ACA's individual mandate. (If the lowest-priced plan available to an individual costs more than 8.05 percent of a person’s household income, the ACA provides an exemption from the individual mandate.) For others, the cost of insurance will be so high that it will be cheaper to simply pay the penalty for not having insurance. Less healthy individuals will still seek insurance, but without healthier people also buying plans, premiums will probably increase significantly. Eventually, only the sickest may remain in the risk pool.  

From a health plan perspective, most plan and premium rate proposals have already been submitted for 2016 and may have already been set. Health plans may potentially exit the markets in affected states depending on their assessment of the state, the risk pool, the health plan’s market strategy, and other factors.  

Individuals in states that set up their own exchange should not be directly affected by the Supreme Court's decision.  

What states will be affected by the decision?

The states affected by a decision to limit eligibility for subsidies could include Alabama, Alaska, Arizona, Arkansas, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming.  

Twenty-seven of these states have federally run exchanges, seven are in federal-state partnerships, and three are in states that tried to develop their own exchange but ultimately had to rely on the federal government’s IT infrastructure. The final list of affected states will depend on how the Court defines "an Exchange established by the State."  

When would the Supreme Court’s decision take effect?

This will depend on the details of the decision. Supreme Court decisions usually take effect 25 days after the decision is released but that can be delayed depending on the unique circumstances of a case. In this case, for example, the Supreme Court could delay the effective date of the decision until Jan. 1, 2016 (the start of the next enrollment year on the exchanges).  

If my organization is in one of the affected states, what can we do to help our patients?

Be prepared to initiate financial conversations with all patients who may have purchased insurance through the federal exchange.  Patients will look to providers to:

  • Provide information about benefits, effective dates of their current plan, and options to obtain new coverage; activities needed include insurance verification, calculation of the patient’s price based on the specific benefits included in the insurance plan, identification of potential eligibility for financial assistance and resolution of the patient’s financial responsibility based on all available options.
  • Identify resources available to patients if their insurance plan opts to leave the local market.
  • Clarify coverage and financial assistance (charity) for patients who may become uninsured in the middle of a course of treatment, i.e., chemotherapy, etc.
  • Explain their financial assistance policy and procedures and help patients complete the application process.  

HFMA’s Patient Financial Communications Best Practices offer guidance on the setting, timing, and recommended content of these conversations.  The Best Practices also include recommendations for annual training and reporting of activities to executive management. By involving senior leadership in the planning and execution of new strategies, support for these activities can be obtained from all parts of the organization. View the Best Practices.  

What else can my organization do to respond to the decision?

A decision to limit eligibility for subsidies will affect both revenue cycle and financial operations for provider organizations. Providers will need to manage changes that affect charity and bad debt policies and provisions.  

Revisit financial assistance policies. If possible, providers should revisit their financial assistance policies and procedures prior to the effective date of the ruling. Although there is no reason to believe that the ruling will eliminate the ACA's individual mandate to purchase insurance, the number of people who would be exempted from the mandate (because affordable coverage is no longer available to them) or who would opt to pay the penalty instead of purchasing unsubsidized insurance plans could dramatically increase. However, these people may have little or no ability to pay for healthcare services.  By detailing the most likely scenarios and updating policies, providers will be prepared to respond to patients whose insurance has lapsed or who have not purchased coverage.  

Educate staff and patients. Providers also should prepare staff to answer patient questions, implement policy changes, and direct patients who wish to purchase coverage to the appropriate resources. Community benefits organizations may play a key role in assisting patients, and should be included in outreach and education initiatives. The importance of staff and patient education cannot be overemphasized.  

Evaluate impact on charity and bad debt reserve calculations. Revenue cycle and finance leadership will need to evaluate the impact of a shift in payer mix from commercial to self pay and the related impact on the charity and bad debt reserve calculations. Using current and historical data to model impacts will be critical to the production of accurate financial statements. Preparing sooner rather than later for any substantial change to the income statement allows providers to make the appropriate adjustments in a timely manner.

What can Congress or my state government do to help?

In the event of a decision to limit eligibility for subsidies, HFMA encourages its members to contact their federal representatives and senators and ask them to resolve any uncertainty about timeframes or options that may have been introduced by the ruling.   

At the state level, the impacts of a decision to limit eligibility for subsidies could be mitigated if affected states move to establish exchanges that meet the requirements of the ACA and the Supreme Court’s decision.    

Publication Date: Wednesday, June 10, 2015