Beyond King v. Burwell: Payers brace for 'death spiral'

Affordable Care Act case leaves insurers with many questions, no answers

"Plans are thinking of overall coverage markets," Phelps said. "For each plan, think about the type of plan and its market share in general. Is it a national carrier? Regional? Is the plan more in the employer or individual markets? The national plans are operating more in states that run their own exchanges. A lot are in scenario planning at the moment--let's plan if subsidies are upheld and if they're not upheld."

What's at stake

Based on the oral arguments alone, "It's difficult for plans to move ahead in their markets," Phelps said. "Insurers are worried about an uneven market. But, there are levers in place that can offset this potential 'death spiral.'"

Case in point: Even if subsidies disappear, the employer mandate would not go away. In 2017, state-based exchanges can open up to large employers. A lot of states see this as an attractive option, Phelps added. It's possible that this could entice states to establish their own exchanges.

Ultimately, the main concern for payers is keeping members, so, they must set premiums carefully going forward. They don't want to lose members, especially considering the growing trend toward consumerization in the industry. Regardless of the outcome, noted Phelps, the King v. Burwell ruling will serve as a catalyst for the entire industry to continue looking ahead.

Payer implications

During the arguments, Justice Sonia Sotomayor reiterated a point Justice Stephen Breyer had made: If subsidies are struck down, "We're going to have the death spiral that this system was created to avoid. Insurers are obligated to make sure that, in their states, they guarantee coverage, and that they base their costs on community ratings."

The recurrence of adverse selection, also known as the "death spiral," may cause premiums to increase by 47 percentFierceHealthPayer previously reported. Provisions in the ACA aim to prevent this from happening. This includes the tax subsidies.