Millions of Obamacare enrollees could pay billions more

The Affordable Care Act could get a whole lot less "affordable" for almost 5 million people if the Obama Administration loses this court fight.

Nearly 90 percent of people who bought insurance plans on HealthCare.gov receive subsidies and will face an average increase in their premiums of a whopping 76 percent if court challenges to a key component of the health-care law are successful, according to a new analysis released Thursday.

And by 2016, about 7.3 million enrollees will lose about $36 billion in subsidies if those court challenges succeed, according to another study issued the same day.

Affected enrollees of four HealthCare.gov states—Florida, Georgia, Missouri and Alaska—would see rate hikes averaging 80 percent or more—and subsidized Mississippi enrollees would face an average increase of 95 percent, according to the the analysis by the Avalere Health consultancy.

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Subsidized enrollees in 20 other states would face premium price increases averaging between 70 percent and 79 percent, Avalere Health found.The remaining other 11 states would see their subsidized enrollees pay an average of between 58 percent to 69 percent more for health-care exchange plans.

The increases represent the difference between what enrollees actually paid for the plan after the subsidies were awarded them, compared with the full retail price paid for non-subsidized enrollees.

"The court case has major implications for future insurance coverage and access to care for millions of Americans," said Caroline Pearson, vice president of Avalere Health. "Depending on the ultimate decision by the courts, and absent some other remedy, individuals in at least 25 states who remain in the current plans could see an average premium increase of over 70 percent."

Her colleague Elizabeth Carpenter said, "States, Congress and the administration will be under immense pressure to act to prevent large premium increases if the courts ultimately rule that individuals in federal exchanges are not eligible for tax credits."

"No doubt the politics surrounding the Affordable Care Act will make any action difficult and could possible make insurance unaffordable for millions of Americans who are already enrolled today," Carpenter said.

Another analysis of the potential fallout from the challenge to subsidies looked at the projected enrollment for Obamacare plans for 2016 and the subsidies that could be lost. That report was issued by the Robert Wood Johnson Foundation and the Urban Institute.

It said that of the 11.8 million people expected to be enrolled on that federal exchange by 2016, a total of 7.3 million would be receiving subsidies for their premium, and many of those people also would be receiving additional financial assistance to help pay for out-of-pocket costs such as co-payments, co-insurance and deductibles.

"A decision in favor of [the challenge] 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 from the sizable reduction in federal dollars flowing into these states," the Urban Institute report said.

"Losses would be as high as $4.8 billion in Florida and $5.6 billion in Texas." Twelve other states would each see ore than $1 billion in lost subsidies apiece, according to the Urban Institute.

Pending court cases

There are four different pending federal court challenges that could lead to that outcome, including the D.C. federal appeals case Halbig vs. Burwell, whose decision is imminent.

Halbig vs. Burwell in recent weeks has been the subject of intense focus among health-policy experts because during oral arguments last spring one of the judges on the three-judge panel appeared sympathetic to the challenge to the subsidies, and another judge's questions suggested he might rule either way.

Halbig and the other cases are based on the argument that language in the ACA only allows the federal government to offer financial assistance in the form of tax credits to people who buy Obamacare insurance policies on health exchanges established by an individual state—not one set up by the federal government, such as HealthCare.gov.

As a result, the plaintiffs argue, the IRS rule that authorized subsidies to be issued to HealthCare.gov enrollees is illegal.

The argument stems from an analysis of the ACA done by Michael Cannon, director of health policy studies at the libertarian Cato Institute, and Jonathan Adler, a law professor at Case Western Reserve University School of Law.

Just 14 states and the District of Columbia are running their own exchanges, so the residents of the other states are served by HealthCare.gov.

Why the subsidies?

About 4.7 million customers of the federal exchange—86 percent of all HealthCare.gov enrollees—received subsidies because their annual incomes were between 100 percent to 400 percent of the federal poverty level, or about $11,500 to about $46,000 for an individual. The subsidies in many cases significantly reduced the amount of money people had to pay out of pocket for their insurance coverage, so much so that some people pay nothing in premiums, and others pay less than $100 per month.

Critics of the plaintiffs' cases say their argument is based on a misreading, or an ultra-specific reading, of the law that ignores the overall intent to provide affordable health coverage to people who lacked insurance.

They also say that a section of the law that talks about the creation of a federal exchange to serve states that don't establish their own marketplace implicitly means that subsidies can be issued through that federal exchange.

But even critics of the plaintiffs concede that if the plaintiffs prevail, it would lead to subsidized plans being unaffordable for many people who bought individual plans. It would also effectively destroy, in any HealthCare.gov state, the Obamacare requirement beginning next year that employers with more than 50 full-time workers offer them affordable insurance coverage or pay a fine. That's because the so-called employer mandate hinges on the ability of workers to buy subsidized coverage through an exchange if they find their employers' coverage choices unaffordable.

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"Of the hundreds of lawsuits filed against Obamacare since the statute's passage, the case challenging the statutory validity of the IRS' subsidy rule is the most dangerous one remaining," said Abigail Moncrieff, a professor at Boston University School of Law. "The plaintiffs have a nontrivial chance of succeeding, and their success would unravel the entire statutory scheme in" the states served by HealthCare.gov, she said.

"Unfortunately for Obamacare, the IRS rule at issue in Halbig, which makes health insurance subsidies available in all states regardless of whether the states set up their own exchanges, deals with a portion of Obamacare that is idiotically drafted and incredibly confusing, and conservative judges therefore have an opportunity to strike down the IRS rule, thereby depriving individuals of subsidies and eliminating the employer and individual mandates in states that refused to set up their own exchanges," Moncrieff said.

If the D.C. federal appeals court rules for the Halbig plaintiffs, it won't be the last word on the subject. The issue could ultimately be decided by the U.S. Supreme Court, particularly if there is a split among the appeals court that hears the challenges to the federal exchange subsidies.

—By CNBC's Dan Mangan