By John Reichard, CQ HealthBeat Editor
November 19, 2014 -- The health law's coverage expansion would be undermined, but not entirely destroyed, if the Supreme Court declares that subsidies intended to help people buy insurance in 37 states are illegal, analysts say.
Such a ruling next year in King v. Burwell would keep the law intact in the 13 states and the District of Columbia that built and operate their own insurance exchange. It could also spur some states that rely on the federal exchange healthcare.gov to build their own online insurance marketplaces, to help eligible residents to qualify for the tax credits that sharply lower premium costs.
The case takes up whether Congress, in drafting the law, intended to limit subsidies to those states that create their own exchanges. Defenders of the law have strenuously rejected the assertion. But "you just have to factor in the possibility" the high court could strike down the subsidies based on the actual text of the law, said Potomac Research analyst Paul Heldman.
"There's a reasonable chance that the court could rule against the administration."
That could touch off bitter battles in Congress and in state legislatures. Almost 5 million Americans receiving subsidies in the states served by healthcare.gov would be shut out. A Kaiser Family Foundation report last week estimated that 13 million Americans who otherwise would get the subsidies in 2016 would be denied them if the King plaintiffs prevail.
That doesn't necessarily spell the demise of exchange-driven coverage expansion, though.
Insurance industry consultant Robert Laszewski said the 13 states fully implementing Obamacare would continue to be able to continue doing so. Coverage expansion could also be restored in other states.
"Obamacare is compartmentalized by state," Laszewski says. "Operationally, there wouldn't be an issue."
That is because each state has its own risk pool that's used to set rates in the individual market. Curtailment of coverage in one state wouldn't dictate what happens in another.
Joseph Antos, a scholar with the right-leaning American Enterprise Institute agrees. "The fact that some states would maintain state exchanges and subsidies and others would not is not a big deal," he said. "It's not a national insurance market."
Antos, who says he thinks a ruling against the Obama administration is very unlikely, noted that when New York imposed unreasonable regulations on insurers, their individual market premiums skyrocketed and all but Blue Cross Blue Shield left. Insurers didn't collapse in any of the surrounding states.
Dan Mendelson, president of the Avalere Health consulting firm, said "the exchanges and Medicaid expansions have a reasonable level of support in many blue states, and I think would be durable facets of the health care landscape even if the Supreme Court rules negatively."
Like Medicaid, exchanges could become more uniform over time. "Before Medicaid was a federal program, it was a patchwork quilt of state programs," Mendelson said. "It wasn't perfect, but was better than nothing."
"As we saw with the Medicaid program after 1995 and the Children's Health Insurance Program after 1997, it often takes a while for some states to opt into programs that have substantial federal funding support and that offer crucial benefits for a potentially large number of state residents," said Ron Pollack, executive director of Families USA.
Pressures could mount in states denied subsidies to set up their own exchanges. Kaiser estimates that in Florida in 2016, 2.5 million residents would be denied subsidies and 1.75 million in Texas.
"The law would continue to work in the states that are running their own exchanges and red state governors and legislatures would be under a lot of political pressure to find a way to keep the subsidies flowing," says Heldman.
States such as Texas and Florida that have Republican governors and legislatures hostile to the health law might continue to resist building their own.
Other Democratic-leaning healthcare.gov states such as Michigan and Illinois could feel pressure to set up exchanges to get subsidies flowing. Kaiser estimates 676,000 Michigan residents and 479,000 Illinois residents would be denied subsidies in 2016.
Meanwhile, lawmakers at the federal and state levels would feel enormous pressure to respond if the Supreme Court strikes down healthcare.gov subsidies.
Without the subsidies, the risk pool in healthcare.gov states would skew toward costly enrollees, driving up premiums that only the very ill would be willing to pay. Not only would millions lose their subsidies, they'd be stuck shopping for insurance on a market where premiums would soar.
"That is not a sustainable political equilibrium," said Michael Cannon of the libertarian Cato Institute, which spearheaded the subsidy challenge.
Negotiations on what to do next could begin when Republicans in the next Congress vote to repeal or weaken parts of the law. "One cannot predict the end of those negotiations," he said.
The safe betting is that Democrats would want to find a way to keep subsidies flowing nationwide while Republicans would target mandates that employers provide and individual carry coverage. The outcome is far from clear.