Last Updated- July 2015:

The Supreme Court: King v. Burwell

How much would consumers’ 2015 health insurance costs per month have risen if premium tax credits were eliminated?

Overview

UPDATE: On June 25, 2015, the U.S. Supreme Court ruled in favor of Burwell in the case of King v. Burwell, thereby finding that residents in states that have not established a health insurance exchange under the Affordable Care Act (ACA) can continue to receive tax credits to lower the cost of health insurance coverage they purchase through the Federally-facilitated Marketplace (FFM). This Spotlight, released in May 2015, prior to the ruling, illustrates the impact if the court had instead ruled in favor of King.

In the case of King v. Burwell, the U.S. Supreme Court will decide whether residents of states that have not established a health insurance exchange under the Affordable Care Act (ACA) can receive tax credits to lower the cost of health insurance coverage they purchase through the Federally-facilitated Marketplace (FFM). Sixteen states and the District of Columbia have established a health insurance exchange. Under a finding in favor of King, residents of the remaining 34 states using the FFM for enrollment are at risk of losing premium tax credits they are currently eligible to receive. These tax credits lower the price of coverage purchased through the FFM. Therefore, eliminating the tax credits would immediately increase their monthly health insurance costs. The Supreme Court is expected to issue a decision on the case in June.


This ACA Spotlight illustrates the potential impacts if the Supreme Court eliminates premium tax credits for those enrolling through the FFM. Specifically, the available maps show how much monthly health insurance costs would rise for different household types in the 2015 coverage year under a finding for King. Data are available at the county or state levels County-level data represent the maximum premium tax credit available, based on the selected individual or married couple’s age and income and the second lowest cost silver health plan available in the county. State-level data represent the averages of the county-level data in the state. For more information about the maps, please refer to the Methodology section below.


This Spotlight was originally released in May, 2015, and most recently updated in June, 2015.

At-A-Glance: State by State Tax Credit Loss Risk

State Marketplace Type* Premium Tax Credit Loss Risk
Alabama Federally-facilitated Marketplace High
Alaska Federally-facilitated Marketplace High
Arizona Federally-facilitated Marketplace High
Arkansas State-Partnership Marketplace Low
California State-based Marketplace None
Colorado State-based Marketplace None
Connecticut State-based Marketplace None
Delaware State-Partnership Marketplace Low
District of Columbia State-based Marketplace None
Florida Federally-facilitated Marketplace High
Georgia Federally-facilitated Marketplace High
Hawaii Federally-supported State-based Marketplace None
Idaho State-based Marketplace None
Illinois State-Partnership Marketplace Low
Indiana Federally-facilitated Marketplace High
Iowa State-Partnership Marketplace Low
Kansas Federally-facilitated Marketplace High
Kentucky State-based Marketplace None
Louisiana Federally-facilitated Marketplace High
Maine Federally-facilitated Marketplace High
Maryland State-based Marketplace None
Massachusetts State-based Marketplace None
Michigan State-Partnership Marketplace Low
Minnesota State-based Marketplace None
Mississippi Federally-facilitated Marketplace High
Missouri Federally-facilitated Marketplace High
Montana Federally-facilitated Marketplace High
Nebraska Federally-facilitated Marketplace High
Nevada Federally-supported State-based Marketplace None
New Hampshire State-Partnership Marketplace Low
New Jersey Federally-facilitated Marketplace High
New Mexico Federally-supported State-based Marketplace None
New York State-based Marketplace None
North Carolina Federally-facilitated Marketplace High
North Dakota Federally-facilitated Marketplace High
Ohio Federally-facilitated Marketplace High
Oklahoma Federally-facilitated Marketplace High
Oregon Federally-supported State-based Marketplace None
Pennsylvania Federally-facilitated Marketplace High
Rhode Island State-based Marketplace None
South Carolina Federally-facilitated Marketplace High
South Dakota Federally-facilitated Marketplace High
Tennessee Federally-facilitated Marketplace High
Texas Federally-facilitated Marketplace High
Utah Federally-facilitated Marketplace High
Vermont State-based Marketplace None
Virginia Federally-facilitated Marketplace High
Washington State-based Marketplace None
West Virginia State-Partnership Marketplace Low
Wisconsin Federally-facilitated Marketplace High
Wyoming Federally-facilitated Marketplace High

* See Kaiser Family Foundation here

Background

On November 7, 2014, the Supreme Court agreed to hear the King v. Burwell lawsuit that challenges the legality of premium tax credits in most states. The Internal Revenue Service (IRS) interpreted the ACA to authorize premium tax credits for individuals who purchase coverage on all health insurance exchanges, whether state-based or federally-facilitated. Proponents in the case argue that the ACA statute only permits tax credits for health insurance purchased through “an Exchange established by the State.”


Currently, 34 states have not taken action to establish a health insurance exchange. In these states, the U.S. Department of Health and Human Services (HHS) has stepped in to ensure that a marketplace is available to provide state residents with access to qualified health plans. Of these 34 states, HHS has taken on complete responsibility to operate a Federally-facilitated Marketplace (FFM) in 27 states and seven states have agreed to share responsibility with HHS to operate a State-Partnership Marketplace. In addition, three states that have established a health insurance exchange operate as Federally-supported State-based Marketplaces that use federal technology (healthcare.gov) for certain functions. The remaining 13 states and the District of Columbia operate their own State-based Marketplaces. The IRS has interpreted the ACA to allow premium tax credits to lower the cost of health insurance purchased through all of these exchanges, whether state-based or federally-facilitated.


There is some uncertainty as to which types of exchanges may be subject to a King v. Burwell ruling based on the Court’s assessment of what constitutes an “Exchange established by the State.” For purposes of this ACA Spotlight, we assume that residents in the 27 FFM states are at high risk of losing premium tax credits, residents in the seven State-Partnership Marketplace states are at low risk, and residents in the 13 SBM states (plus the District of Columbia) and three Federally-supported SBM states are not at risk.


The Kaiser Family Foundation estimates that if the Supreme Court rules against the current implementation of the ACA, more than 13 million Americans could lose tax credits to help pay for insurance coverage by 2016. These tax credits will be worth an average of more than $4,800 annually per household, and in the aggregate represent a loss of approximately $65 billion across the affected states.

Methodology

The infographics presented in this ACA Spotlight focus on how much monthly health insurance costs would increase for different household types in the 2015 coverage year under a finding for King in the King v. Burwell Supreme Court case. To assess the impact of the case on a national scale, Social Interest Solutions (SIS) utilized its MAGI Cloud platform along with the 2015 plan management data available from healthcare.gov. The MAGI Cloud platform includes a comprehensive rules engine that can generate ACA eligibility determinations across all states and across the full spectrum of health insurance options, including Medicaid, the Children’s Health Insurance Program (CHIP), and Qualified Health Plans (QHPs) with and without premium tax credits and cost-sharing reduction subsidies. To learn more about the MAGI Cloud platform, click here.


To assess the impact of the case, SIS used the MAGI Cloud platform to calculate the maximum available 2015 premium tax credit amount on a county-by-county and state average basis across a spectrum of different household types. (Actual available premium tax credits for a given household might be lower than the maximum if the total premium for the plan the household selects is lower than the maximum available tax credit or if the household opts not to use the full amount of available tax credit on an advance basis.) In the absence of this subsidy, the monthly cost of insurance in the 2015 coverage year for each of the different household types assessed would rise by an amount equal to the maximum available premium tax credit subsidy that is no longer available. Three data points are provided: the amount of the premium increase, which equals the amount of the maximum premium tax credit for the household; the percentage increase in premiums, which equals the net premium (total premium minus premium tax credit) for the second lowest cost silver plan as a share of total premium; and the amount of the premium increase as a percentage of the household’s income.


The geographic variation in premium tax credit amounts is due to the underlying geographic variation in health insurance premiums. Premium tax credits are calculated based on the age-rated cost of the second lowest cost silver plan in each region (known as the benchmark plan) relative to household income. People of the same age and income living in regions with higher benchmark plan premiums are eligible to receive higher premium tax credits than those living in regions with lower benchmark plan premiums.


This ACA Spotlight analysis includes assumptions about each state’s risk of losing premium tax credits based on the Supreme Court ruling. Residents in all states that operate as Federally-facilitated Marketplaces were considered at “high” risk for losing their premium tax credits. Residents in states that operate as State-Partnerships were considered at “low” risk for loss. Finally, residents in all State-based Marketplaces and Federally-supported State-based Marketplaces were considered to have “no” risk of losing their premium tax credits.


Twelve reference household types were incorporated into this ACA Spotlight analysis. They include:


Single Person Households FPL Married Couple Households FPL
Single, 30 year old adult
$17,505 annual income
150% Couple, each 30 years old,
$23,595 annual income
150%
Single, 30 year old adult
$23,350 annual income
200% Couple, each 30 years,old,
$31,460 annual income
200%
Single, 30 year old adult,
$35,010 annual income
300% Couple, each 30 years,old,
$47,190 annual income
300%
Single, 40 year old adult
$17,505 annual income
150% Couple, each 40 years old,
$23,595 annual income
150%
Single, 40 year old adult
$23,350 annual income
200% Couple, each 40 years,old,
$31,460 annual income
200%
Single, 40 year old adult,
$35,010 annual income
300% Couple, each 40 years,old,
$47,190 annual income
300%
Single, 50 year old adult,
$17,505 annual income
150% Couple, each 50 years,old,
$23,595 annual income
150%
Single, 50 year old adult,
$23,350 annual income
200% Couple, each 50 years,old,
$31,460 annual income
200%
Single, 50 year old adult,
$35,010 annual income
300% Couple, each 50 years,old,
$47,190 annual income
300%

These household types were chosen to demonstrate how the impact of a Supreme Court decision against federal premium tax credits changes as household age, size, and income varies.


While this analysis provides an estimate of the immediate impact on monthly health insurance costs in the 2015 coverage year, the actual increase in insurance premium rates experienced by these household types over time will be determined by the annual insurance rate setting process in each of the affected states, the rules for calculating premium tax credits, and other factors. Other analyses suggest that the removal of the premium tax credit subsidy in the states utilizing the Federally-facilitated Marketplace may have a destabilizing effect on the insurance market, leading to even higher insurance rate increases over time than those presented in this analysis.

Additional Resources