The Billion Dollar Decision

When the U.S. Supreme Court hands down its ruling on Obamacare’s tax credits (expected in late June), it could zap nearly $1 billion from Hoosiers’ finances, according to a new analysis by the Urban Institute.
 
That’s the total value of the tax credits and cost-sharing features Hoosiers will be enjoying in the Obamacare insurance exchange, which will conclude its second enrollment period on Feb. 15, according to a model prepared by the left-leaning D.C. think tank.
 
In fact, Hoosiers buying insurance via the Obamacare exchanges have more to lose, as a percentage of their incomes, than the residents of all states other than Alaska and—you guessed it—Mississippi.
 
The tax credits are those advanceable payments (meaning they go straight to the health insurance company) available to folks with incomes between the federal poverty limit and four times that limit. That’s between $11,670 and $46,680 for an individual. For a family of four, that’s between $23,850 and $95,400.
 
Those tax credits were thought, by nearly everyone involved in the debate that led to Obamacare, to apply to all buyers in the exchanges. But the final bill, when it talks specifically about tax credits, says they are available in exchanges operated by a state government. It does not mention tax credits being available in exchanges operates by the federal government.

Since Indiana is one of 35 states that is not running its own exchange—but is instead participating in the federal exchange—the tax credits being doled out to Hoosiers could be nullified by the Supreme Court. That’s if Justice John Roberts & Co. side with the plaintiffs in the case King v. Burwell, who have argued that the Obama administration exceeded its authority when it awarded tax credits to buyers in the federal exchanges.

(For my wonkier readers, you might remember this issue being involved last summer in "Gruber-gate," the mini-scandal in which MIT economist Jonathan Gruber–who was highly influential in the creation of the Obamacare exchangees and tax credits–made comments in online vidoes that supported the King interpretation. Here's a decent summary.)

In fact, Indiana Attorney General Greg Zoeller and numerous Indiana school corporations have filed a similar lawsuit seeking to invalidate Obamacare’s tax credits and employer mandate to provide health insurance.
 
Last year, 89 percent of Hoosiers who selected a plan on the Obamacare exchange qualified for a tax credit. Those credits averaged $4,032 per person—which was nearly an 80 percent reduction off the cost of insurance.
 
The size of the tax credits is expected to come down as more Hoosiers with higher incomes opt into the exchange this year and next, and as health insurers compete more vigorously on price.
 
But the Urban Institute study also included the value of the cost-sharing provisions available via some Obamacare health plans. On Obamacare’s so-called silver plans, the federal government pays extra money to health insurers to reduce deductibles and co-pays for low-income buyers.
 
Last year, about three-quarters of the Obamacare buyers in Indiana picked silver plans that came with these cost-sharing features.

When the Urban Institute combined the expected value of tax credits and cost-sharing provisions for 2016, it calculated that Hoosiers would receive $925 million in benefits from Obamacare policies.
 
That punches out to $4,110 for each of the 225,000 Hoosiers expected to buy in the exchanges next year.
 
That level of enrollment is plausible, since already this year more than 185,000 Hoosiers have selected an Obamacare plan, according to the U.S. Department of Health and Human Services.
 
While $925 million sounds like a lot of money, it’s worth noting that it’s just 0.35 percent of the total income Hoosiers were on pace to receive this year, according to data released in December by the Bureau of Economic Analysis.
 
But it’s surely enough to spur health insurers—such as Indianapolis-based Anthem Inc.—to lobby state governments to find a way to bring them back—if the Supreme Court says they’re no longer available through the federal exchange.
 
Indiana could operate its own exchange—which previous estimates pegged at $50 million or more per year. Or it might, for much less money, run an exchange in partnership with the federal government. That hybrid option might still qualify for subsidies, depending on the exact wording to the Supreme Court’s ruling.
 
As a percentage of per-person income in Indiana, the value of Obamacare’s tax credits and cost-sharing subsidies is much, much greater—more than 10 percent by my calculations. That’s probably enough to make those 225,000 Hoosiers pretty vocal proponents of reinstating the tax credits.
 
Whether that’s enough to sway Gov. Mike Pence—who is positioning himself for national office as a Republican who views Obamacare as anathema—that's anyone's guess. If the Supremes rule against Obamacare, that will be Pence’s billion-dollar decision.