What SCOTUS’ California v. Texas Decision Means for Insurers and Providers
On June 17, the U.S. Supreme Court rejected a challenge to the constitutionality of the Affordable Care Act (ACA) by a 7-2 vote.[i] The Court declined to rule on the merits of the case but held that the challengers of the ACA, 18 state attorneys general, did not have standing.[ii]
The ACA has been at the center of several lawsuits since the law was enacted in 2010, including two cases heard by the Supreme Court prior to Texas.[iii] While the Texas decision did not consider the constitutionality of the ACA, the outcome might deter future challenges to the law.
As a result of the Texas decision, the ACA’s major provisions will remain intact for the foreseeable future. The legal stability surrounding the ACA may translate into market stability. Thus, healthcare industry stakeholders could have greater confidence that the current regulatory scheme and market forces will remain stable, which in turn, could have important implications for insurance markets and providers.
First, the stability could introduce millions of new subscribers into the health insurance market. For insurance companies, it means they will have access to a larger market of potential subscribers. For providers, it could mean seeing less uninsured patients and providing less uncompensated care as a result.
The stability of the ACA gives Congress the opportunity to reimpose the tax penalty under the individual mandate. The individual mandate provision of the ACA was originally designed as a tax penalty to induce uninsured individuals to purchase health insurance or pay higher taxes.[iv] The objective was to encourage younger populations to purchase insurance in order to make risk pools healthier and lower premiums across the board.[v] However, the Tax Cuts and Jobs Act of 2017 zeroed-out the tax, effectively negating the force of the ACA’s individual mandate provision.[vi] The Texas decision might renew enough vigor around the law to push Congress to reinstate the tax penalty.
If Congress decides to act, data suggests that insurance companies may have access to a significantly larger customer base. A study by the Brookings Institution estimated that the individual mandate increased insurance coverage by 8 million people in 2016.[vii] A 2018 report by the Congressional Budget Office (CBO) estimated that the elimination of the individual mandate tax penalty in 2017 would reduce health insurance enrollment by 3 million to 6 million between 2019 and 2021.[viii]
If Congress reimposes the tax penalty, health insurance enrollment rates could begin to rise again. The 2019 American Community Survey (ACS) found that adults between the ages of 19 and 34 have the highest uninsured rates of any age group in the U.S.[ix] Of all 50 states, Florida has one of the highest rates of uninsured people in this age group.[x] Reinstating the tax penalty could reintroduce this healthier population into insurance markets, increasing not only access to a larger customer base but, more importantly, access to a healthier and less costly customer base. Therefore, insurance companies may see greater opportunities for growth.
For providers, a reinstatement of the individual mandate’s tax penalty could lead to greater rates of insured patients and providing lower rates of uncompensated care. Under the Emergency Medical Treatment & Labor Act (EMTALA), hospitals are mandated to treat patients regardless of a patient’s ability to pay.[xi] When rates of uninsured individuals are high, hospitals must absorb the high costs of uncompensated care.[xii] Further, uninsured patients are less likely to seek care from primary care providers, which worsens chronic conditions and increases the number of emergency department visits in the long-term, leading to even more uncompensated care.[xiii] Reinstating the individual mandate’s tax penalty could reverse this trend and shift the burden of absorbing the costs of providing this care from hospitals to insurance companies.
Second, the stability of the ACA individual marketplace could translate into greater opportunities for insurance companies that participate in the individual marketplace.
Under the ACA, individuals with incomes between 100% and 400% of the federal poverty level who purchase coverage through the Health Insurance Marketplaces are eligible for federal subsidies.[xiv] In Florida, individual policies have seen the highest rates of growth in enrollment compared to enrollment rates for small and large group plans.[xv] As of 2020, only 63% of the potential subsidy-eligible population in Florida was enrolled in an individual marketplace plan.[xvi] This coverage gap and the continuation of federal subsidies under the ACA represent an opportunity for insurers to capture part of this market.
Third, stability in the Medicaid market could create greater opportunities for Medicaid Managed Care Organizations (MCO’s).
Under the ACA, states have the option of expanding their state Medicaid programs to insure nonelderly adults with incomes up to 138% of the federal poverty level.[xvii] Currently, 38 states have chosen to expand Medicaid to cover eligible people under the ACA.[xviii] Florida has not adopted the Medicaid expansion.[xix] Many states that have adopted the Medicaid expansion contract with MCO’s to deliver health services to beneficiaries.[xx] MCO’s receive capitated payments for services—a set per member per month contracted payment rate—which incentivizes plans and providers to deliver high-value and low-cost care.[xxi]
The recent legal challenges to the ACA, including California v. Texas which had the potential to invalidate the entire ACA, would have ended state Medicaid expansion programs under the ACA and threatened the viability of MCO’s contracting with state Medicaid programs.
The outcome of Texas could have growth opportunities for MCO’s. As of 2020, more than two-thirds of Medicaid beneficiaries nationally received most or all of their care through MCO’s, and almost two-thirds of states that contract with MCOs enroll 75% or more of their Medicaid beneficiaries in MCOs.[xxii] Between March 2020 and December 2020, Florida saw a 21.8% growth rate in Medicaid MCO enrollment.[xxiii] In addition to enrollment growth, high revenue growth has driven more MCO’s to the Medicaid program. Private-equity and venture-capital firms backing healthcare technology start-ups have partially driven this growth, as MCO’s continue to partner with companies offering technology platforms that help MCO’s coordinate care and manage complex patient populations.[xxiv]
The Texas decision may signal to MCO’s, technology companies contracting with MCO’s, and well-capitalized investors that the recent enrollment and revenue growth trends will continue.
While Florida has opted out of Medicaid expansion under the ACA, the possibility that Florida could opt in remains. During the 2021 Legislative Session, three state lawmakers introduced Medicaid expansion bills.[xxv] The possibility of Medicaid expansion in Florida may further encourage growth in Florida’s Medicaid managed care market.
In sum, the Texas decision has lifted the veil of regulatory uncertainty that has hovered over the healthcare industry in recent years due to numerous legal challenges to the ACA. The decision may offer insurers and providers significant opportunities for revenue growth. These opportunities will be magnified if Congress chooses to reinstate the ACA’s individual mandate tax penalty, and if Florida legislators or voters choose to expand Medicaid under the ACA.