Supreme Court Affirms Affordable Care Act Subsidies

With the Supreme Court case now behind us, I’m hoping what we can do is focus on how to make it [the Affordable Care Act] even better.
— President Obama, speaking in Nashville, Tennessee, on June 30, 2015

The Supreme Court Decision

On June 25, the Supreme Court ruled that the Affordable Care Act subsidies that are provided to help uninsured consumers afford health insurance are valid for states that rely on the federal government to run their health insurance exchanges. The Supreme Court decision is good news for the president, for the Affordable Care Act, and for the millions of Americans who without subsidies could not afford to purchase health care coverage.

But as the president states, there are improvements that need to be made to the Affordable Care Act "to make it even better." The law's Waiver for State Innovation provision provides a critical opportunity to do just that. If a state receives a waiver to implement an alternative approach to health care coverage, it is still eligible to receive tax credits, Medicaid expansion funds, and subsidies.

Cost Challenges for State Insurance Exchanges

The Waiver for State Innovation provision has become increasingly important given the economic challenges states are facing with exchanges. Connecticut, Hawaii, Kentucky, Maryland, Massachusetts, and Rhode Island have all expressed concerns about the cost of their state-run exchanges.

Operational Costs: The Washington Post recently reported that nearly half of the state-run exchanges will "face financial struggles in the future." The biggest costs are the call centers and the IT systems, which are critical to recruitment and to determination of subsidy eligibility.

Enrollment Problems: Lower-than-expected enrollment numbers also pose a serious problem. With the end of federal grant support this year, these state-run exchanges are hoping to generate sufficient revenues for operating costs through fees required of insurers (and ultimately the consumer). Clearly, the larger the enrollment numbers, the lower the per capita fee.

(See "Almost Half of Obamacare Exchanges Face Financial Struggles in the Future," Lena H. Sun and Niraj Chokshi, Washington Post, May 1, 2015)

Alternatives to Exchanges

The above problems, which were predicted by quite a few experts even prior to the establishment of exchanges, demonstrate the importance of the Waiver for State Innovation provision. If an exchange proves to be unworkable, then it is perfectly acceptable for a state to try something different—which is what the New Mexico Health Security Act is all about.

Tomorrow's post will focus on the economic issues facing New Mexico's insurance exchange.