If courts gut Obamacare, Pence will face tough choice

If this week’s D.C. appeals court ruling stands up—declaring the Obamacare tax subsidies illegal in Indiana and most other states—you would think Gov. Mike Pence would rejoice.

After all, Pence is governor of a state that has filed a similar lawsuit to the one that led to Tuesday’s ruling. Both suits, along with two others, claim that the Obamacare tax subsidies violate the letter of the Affordable Care Act, which mentions the availability of those tax credits only when it talks about state-run exchanges, not the federally run exchange in which Indiana participates.
 
On top of that, Pence has been a consistent critic of Obamacare, even back to his days in Congress. He said as recently as May that he wants the law repealed. 

Pence made no public comment this week about the ruling. Although more than a few conservatives took a victory lap.
 
“President Obama’s penchant for treating laws as unlimited grants of power to his Administration is catching up with him,” stated the Wall Street Journal editorial page after the 2-1 decision in the case, known as Halbig v. Burwell.

Some conservatives just want Obamacare to crash and burn, and a Supreme Court endorsement of Tuesday’s ruling would do exactly that. It would invalidate Obamacare’s method of subsidizing the cost of private insurance for what is expected to be 500,000 Hoosiers, and 25 million Americans, by 2018.
 
Other conservatives hope that ending the federal tax credits will force President Obama and Democratic lawmakers to agree to rewrite the health reform law in order to save it. That would give conservatives the chance to jettison the things they hate most about the law and to insert some of their own health reform ideas.
 
But this may be wishful thinking.
 
If the $400 million in tax credits that were used this year to help Hoosiers via the Obamacare exchanges (and likely won’t be ruled on by the Supreme Court until after another 60,000 Hoosiers buy via the exchanges for 2015 coverage) are suddenly snatched away, whom are voters more likely to blame? More than one right-leaning commentator thinks Republicans will take the largest share of voters' ire.

“Can you imagine what would happen to a state politician if residents have to go and buy insurance that costs you $10,000, all the while being told by the opposing party, ‘You could have had a subsidy for $10,000,’?” Devon Herrick, a health policy scholar at the conservative think tank the National Center for Policy Analysis, told me last fall. “That is a strategy for getting defeated.”

If the tax credits in federally run exchanges are, ultimately, declared illegal, there will likely be tremendous pressure on Indiana’s leaders to run their own exchange. Democratic lawmakers already introduced bills earlier this year calling on the state to do exactly that.
 
Some commentators even think the Obama administration could create an easy “workaround” for states to take on their own exchanges.
 
“A state could, for example, establish an exchange and appoint a state-incorporated entity to oversee and manage it. That state-incorporated entity could then contract with Healthcare.gov [the federal exchange website] to operate the exchange. On the ground, nothing would change. But tax credits would be available where they weren’t before,” wrote Nicholas Bagley, a law professor at the University of Michigan, on The Incidental Economist blog. 

Those scenarios would put Pence in a tight spot.
 
If his own state (or its allies) wins its legal argument, it will look awfully foolish if Pence then switches to a state-run exchange, anyway.
 
Doing so in late 2015 or early 2016, when Pence will be vying for the Republican nomination for president (if you still have any doubts, read these comments from his pollster), doing anything that can be characterized as embracing Obamacare will provide his Republican opponents instant ammo.

Already, Pence has faced significant criticism from conservatives for his decision to accept Obamacare’s money for expanding coverage to low-income Hoosiers—even though his vehicle for doing so, the Healthy Indiana Plan 2.0, would substantially reform Medicaid, a goal long sought by conservatives.
 
“Mike Pence might be getting high-fives and fist-bumps from President Obama for his Medicaid expansion plan, but his voters in his state are scratching their heads wondering what happened to the principled anti-Obamacare crusader they elected governor,” said Tarren Bragdon, CEO of the Florida-based Foundation for Government Accountability, which surveyed Indiana Republicans recently with several loaded questions about Pence’s HIP 2.0 plan.
 
But if Pence rejects the available options to keep the tax credits flowing, it’s likely he’ll face significant pushback. And not just from patient advocates and hospital and doctors groups, which tend to lean Democratic, anyway. Even traditionally Republicans constituents might join the chorus.
 
It’s likely that, by that time, numerous small employers will be facing big price increases on their health benefits. That’s because other parts of Obamacare will require them, by late 2016, to adopt health plans that will reduce premiums for older-than-average workers while raising premiums for younger-than-average workers.
 
Many employers with younger workers will want to be able to get relief by moving their workers to the Obamacare exchanges where they can get tax credits to keep down their insurance costs. A Pence campaign certainly won’t want to be perceived as against the interests of small businesses.
 
On top of that, the health insurers that are enjoying this money—Indianapolis-based WellPoint’s stock has soared to all-time highs of $115 per share on its success with Obamacare—would likely put significant pressure on Pence to keep the credits flowing. Even health insurance executives that think Obamacare is bad policy have told me their worst nightmare is having a law on the books with no funding behind it.

Or, perhaps none of this will happen because the Supreme Court will uphold the Obamacare tax credits for federal exchanges. Pence, it seems, would avoid a lot of headaches if it did.