Today's Court Decision Might Make Health Insurance Unaffordable in the Poorest States

Halbig v. Burwell threatens to undo the Obamacare subsidies that millions of people in more than half the country rely on to buy insurance.

Lucy Nicholson/Reuters

A three-judge panel on a federal appeals court ruled today that the government cannot give Obamacare subsidies to people who live in states that did not set up their own, state-based health insurance exchanges.

The ruling, from the D.C. Circuit Court of Appeals, is a major blow to the Affordable Care Act, which sought to make health insurance affordable to everyone by providing low- and middle-income people with discounts on health insurance premiums.

Obamacare provided for the creation of state-based "exchanges," or online marketplaces, on which people can buy insurance plans. Although some states set up their own marketplaces, 36 defaulted to the federal exchange, The D.C. Circuit court decision today said that people in states that use the federal marketplace shouldn't be able to receive subsidies because the Affordable Care Act reads that subsidies should be available to those “enrolled through an Exchange established by the State.”

Obamacare supporters within the government have said that the clause was just a "wording glitch," and in January a lower court agreed that the law clearly intended for everyone to have access to the subsidies, regardless of the type of exchange their state has. And also today, the Richmond-based Fourth Circuit Court of Appeals ruled in a separate case that the subsidies should be allowed in every state.

But the D.C. Circuit Court sided with plaintiffs—three private companies and four individuals—who argued that the letter of the Obamacare law should be followed.

If the D.C. Court decision is upheld, it could make health insurance unaffordable for the people who live in states that use the federal exchange. Not coincidentally, the states that didn't set up their own exchanges tend to be Republican-controlled. They also make up much of the Deep South—some of the poorest states in the country.

It could be argued that the subsidies are the main reason that 5.4 million people have been able to sign up for health insurance through the federal marketplace so far. Fully 87 percent of those people received the subsidies, and the discounts were huge. The below chart, from a report by the Department of Health and Human Services, shows that people who would have paid $289 for a "Bronze" plan, one of the cheapest, instead paid an average of just $68 a month after the subsidy, or a discount of 76 percent. The chart below shows the rest of the average discounts. ("All metal levels" just means all the different types of plans, which are all named for different metals.)

Average Monthly Tax Credits and Premiums for People on the Federal Exchanges
From Department of Health and Human Services computations of federally-facilitated marketplace data as of May 12, 2014.

Because the subsidies are tied to individuals' incomes, poorer states have received, on average, even steeper discounts on premiums. According to a recent report from the health consultancy Avalere Health, "individuals receiving subsidies in Mississippi currently see their premiums reduced by an average of 95 percent. Consumers in Florida, Alaska, Missouri, and Georgia received premium reductions of over 80 percent, on average."

Here's Avalere's calculation of how much residents of different states would see their premiums rise if the anti-subsidy ruling from today is upheld. The range is from about 60 to 70 percent in states like New Mexico and Arizona, to 80 to 95 percent in places like Georgia and Florida:

Average Premium Increase Without Federal Subsidies

The Obama administration will appeal the case that went against them, called Halbig v. Burwell, to the full appeals court. Several other similar lawsuits challenging the Obamacare subsidies are making their way through other courts, and we still don't know whether one of those, or the Fourth Circuit (pro-subsidy), or the D.C. Circuit (anti-subsidy) decisions will prevail.

If the Halbig decision is upheld, the overall economic cost to the states using the federal exchange could be massive, according to one recent study. "A decision in favor of Halbig [which today's was] translates into a loss of $36.1 billion in 2016 of funds that would otherwise go to individuals and families with incomes below 400 percent of the federal poverty level, with spillover effects to state economies also expected," write researchers from the Urban Institute’s Health Policy Center.

Because many of the states with federal exchanges are some of the most conservative, it's also unlikely that they would all switch over to operating their own exchanges if their subsidies were cut off for good.

The individual impact would arguably be even more devastating. People repeatedly cite cost as the main reason they go uninsured. Obamacare subsidies eliminated the financial barrier to insurance for millions. If the courts ultimately rule against the subsidies, it could once again create two categories of Americans: One of mostly-insured people living in states with their own exchanges, and one where health insurance is still far out of financial reach, all thanks to a single "wording glitch."