Two Americas on Health Care, and Danger of Further Division
JULY 23, 2014 Margot Sanger-Katz
For decades, the United States has had a fragmented health policy. States called the shots on major elements of how health care and health insurance were financed and regulated. The result: a hodgepodge of coverage and a wide variance in health.
The Affordable Care Act was designed to help standardize important parts of that system, by imposing some common rules across the entire country and by providing federal financing to help residents in all states afford insurance coverage. But a series of court rulings on the law could make the differences among the states bigger than ever.
The law was designed to pump federal dollars into poorer states, where lots of residents were uninsured. Many tended to be Republican-leaning. But the court rulings, if upheld, could leave only the richer, Democratic states with the federal dollars and broad insurance coverage. States that opted out of optional portions of the law could see little improvement in coverage and even economic damage.
“It will be essentially health reform for blue states,” said John Holahan, a health policy fellow at the Urban Institute, a research group.
Source: Urban Institute’s Health Reform Monitoring Survey
On Tuesday, the United States Court of Appeals for the District of Columbia Circuit ruled that the law didn’t allow the federal government to offer financial assistance to people buying insurance in states not running their own insurance marketplaces. That ruling is a long way from final — a second federal court, considering the same issue, ruled to leave the subsidies untouched. If the Washington court’s logic was endorsed by the Supreme Court, it could mean that millions of residents in 36 states would lose access to insurance through the A.C.A.
But even if the current cases fizzle, as some legal analysts expect, there is an existing red-state-blue-state fissure in insurance expansion under the Affordable Care Act.
Two years ago, the Supreme Court ruled that another key provision of the law, one that expanded the Medicaid insurance program to all low-income Americans around the country, would be optional for states. Now that the expansion is underway, existing disparities in rates of insurance have widened among the states. About half the states decided not to expand Medicaid. Recent surveys show that those states that did expand it have significantly reduced their uninsured population. An Urban Institute survey found that the uninsurance rate among adults under 65 had declined by 6.1 percentage points in states that expanded, compared with only 1.7 percentage points in those that didn’t.
With the Medicaid decision and the D.C. Circuit decision, “it really turns what was a national reform plan into a state-by-state reform,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation, a health care research group. “It gives enormous power to states to decide whether major pieces of the Affordable Care Act go forward.”
There are 24 states that have not expanded Medicaid and that don’t have state insurance exchanges. Fifteen states with state exchanges have expanded Medicaid. The remaining states are participating in one Obamacare program, but not the other.
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The Medicaid expansion applied to families earning less than 135 percent of the federal poverty level, or about $16,000 a year for a single person. The insurance subsidies at the heart of the recent case apply to middle-income people who earn more — up to 400 percent of the federal poverty level. The vast majority of people who bought Obamacare health insurance this year qualified for some level of subsidy, including an average of 87 percent of the people who signed up in the 36 states without their own marketplaces, according to an analysis from the health care industry consultants at Avalere Health.
Estimates from Kaiser suggest that most of the five million people who got subsidies in those states this year earned between twice and triple the poverty level, meaning they tend to be working families without access to employer coverage. These people probably could not easily afford the full price of an insurance policy. The Avalere analysis found that tax credits for the people who have already signed up for marketplace health plans paid for more than three-quarters of the cost of their premiums, on average.
Of course, many more people are expected to sign up for health insurance in the years ahead if the law proceeds unmodified. Kaiser estimates a total of nearly 13 million people who are legally eligible for subsidized insurance in the 36 states.
The elimination of subsidies would leave a group of states where residents “would remain without many of the benefits of the Affordable Care Act,” said Elizabeth Carpenter, a director at Avalere who wrote the report.
The loss of the subsidies could set in motion a cascade of consequences for those states. Obamacare requires people to obtain insurance if they can afford it, and fewer people will be subject to that requirement if the subsidies disappear. Taking away both the encouragement of subsidies and the penalties for remaining uninsured will most likely mean that only the sickest and most motivated people will keep buying insurance in those marketplaces. That, in turn, could drive up the cost of insurance and prompt insurers to stop selling their products there, making access to insurance even more difficult.
And the loss of insurance subsidies may also spell trouble for health care providers and the communities they serve. The Affordable Care Act paid for its generous subsidies in part by reducing payments it makes to hospitals. Hospitals took the deal because they calculated that all the new customers with insurance would help make up for the losses. The reduction in insured customers could mean big hits to those hospitals, many of which are major employers in their communities. The states in this category include some of the poorest in the nation.