Their industry already upended with the passage of the federal health care law, insurance companies are facing another upheaval if the Supreme Court rules that millions of Americans are not eligible for subsidies to help defray the cost of their coverage.
The court is expected to decide by the end of June or in early July whether it agrees with the plaintiffs in King v. Burwell that the language in the Affordable Care Act allows the government to offer subsidies only in those states that have established their own insurance marketplaces.
About 6.4 million people who now have insurance could be affected if the court rules with the plaintiffs. Without financial assistance, millions of them would probably drop their policies. And insurers would scramble to rethink the assumptions they made in setting their prices, and even whether to continue selling individual policies at all.
“Anything that impacts who’s signing up creates a lot of risk for the carrier, and lots of uncertainty and challenges in the future,” said David V. Axene, a health actuary in Murrieta, Calif.
How insurers in states without marketplaces would react is unclear, and what they would do depends heavily on the steps taken by individual states, some of which may rush to create them, and whether Congress and the Obama administration can agree on a solution to address the potential loss of coverage and market instability.
“Plans will look at their own markets,” said Alissa Fox, a senior vice president at Blue Cross Blue Shield Association. “They will ultimately make their own decisions.”
The immediate challenge to insurers will be to try to assess what is likely to happen at the state and federal levels. “We’ll want to have answers as soon as possible,” Ms. Fox said. Plans will “want to hear from regulators how to move forward.”
But whatever changes they would need to make to their plans and their prices would take time, she said, noting it has taken years for insurers to become comfortable with selling policies under the health care law, which requires companies to offer coverage to everyone, including people with costly medical conditions, and not charge them higher prices if they are sick.
The case, brought by four plaintiffs from Virginia, revolves around four words in the Affordable Care Act: “established by the state.” Critics of the law, including many Republicans who have repeatedly sought to overturn it, have argued that the law is written in such a way that it makes federal tax credits available only to people buying coverage in marketplaces created by the states themselves.
If the court agrees with the plaintiffs, it may rule that the federal government could not provide subsidies to anyone living in a state that did not set up its own marketplace. While residents of about a dozen states, including California and New York, would not be affected, people living in the 34 states that chose to have the federal government run their exchanges would no longer be eligible for assistance. There are three more states that rely on HealthCare.gov as their platform, and their status is unclear.
Without subsidies, the cost of coverage is likely to be out of reach for many of the people who signed up. According to a new analysis from the consultant Avalere, consumers would have to pay an average of $3,300 more a year in 2015 if they no longer received the federal tax credits.
People like Joyce Bell, 64, who lives in Tequesta, Fla., say they could no longer afford coverage. “I wouldn’t have insurance,” said Ms. Bell, who estimates her monthly premium would at least double from the $326 a month she pays now.
“We’re going to lose it here,” she said, adding that it was unlikely Florida would make any move to set up an exchange after the Supreme Court decision, given the longtime opposition to the law by Gov. Rick Scott, a Republican. States were given the option of setting up their own marketplaces, in which individuals could shop for different policies, or having the federal government run one for them.
People who can no longer afford coverage are not required to buy a policy under the law, and economists expect the pool of people buying insurance to be much smaller as people drop their policies if the court rules for the plaintiffs. Those who remain are likely to be sicker, and overall premiums are expected to rise sharply. RAND Corporation researchers, for example, estimated in a brief that prices could go up by 47 percent for a midlevel plan.
The market will change significantly, analysts say.
“The impact to the insurers is immediate,” said Stephen Zaharuk, a senior vice president at Moody’s Investors Service.
Large for-profit insurance companies have benefited from the law, with subsidies enabling millions of new customers to sign up. As the market for employer-based coverage stalled, the remade market for individual insurance offered an alternative place to sell policies. “In the longer term, this was seen as a possible growth engine,” he said.
Despite initial concerns, the large insurers seem to be prospering, with household names like Anthem, Aetna and UnitedHealthcare actively selling coverage through the marketplaces. “What a bonanza the A.C.A. has been for the health insurance industry,” said Jay Angoff, a former federal and state insurance regulator.
A much-diminished individual market would not cripple the large companies, Mr. Zaharuk said, because they are diversified, handling insurance for employers and participating in government programs like Medicare. “If they lose this business, it doesn’t really trip them up that much,” he said.
For smaller insurers, however, the story is different. The blow from a court decision invalidating the subsidies “would be disastrous,” Mr. Zaharuk said.
Many of the consumer-oriented so-called co-op plans, created under the law to foster competition on the exchanges, would be especially hard hit because they are so focused on the individual market. They are also more vulnerable financially because they are start-ups.
“We would be at risk,” said Tom Zumtobel, chief executive of Meritus, a co-op serving Arizona that now has 54,000 people enrolled in its plans. While Meritus expects to be able to eventually broaden its base of customers, 90 percent of its policies are now sold to individuals, and almost 80 percent of those people are receiving subsidies.
“We wouldn’t be done, but we would have to retool and refocus our products,” Mr. Zumtobel said.
Other co-ops say they have already diversified. “We can weather it,” said Shaun Greene, an executive at Arches Health Plan in Utah, which has increasingly been selling policies to large employers.
Mr. Greene said Arches had been talking with state regulators about what to do if the court rules that subsidies are no longer available in Utah. “We’ve told them we would have to revise rates,” he said. Without higher rates, insurers would have steep losses, making it unsustainable for them to be in the market, he said.
The subsidies represent a core component of the way the market is designed. If people in most states do not have help in paying for coverage, “the next natural question is can insurance market reform survive,” said Elizabeth Carpenter, a director at Avalere.
The market would not be viable if the plans enrolled too many people with serious medical conditions and were forced to raise their prices so high that healthier customers were forced to drop out. The market would then undergo a so-called death spiral, in which more and more people dropped coverage as prices increased.
Another possibility would be for policy makers to dismantle the law, allowing the individual market to return to the way things were before the Affordable Care Act was enacted. Insurers would be free to price policies based on a person’s health and could refuse to cover everyone. And the states or the federal government could try to create special pools for the very sick.
Some in the industry say they are optimistic that federal and state officials will work out some sort of fix. They say that the industry is unlikely to return to a time when it could deny coverage to people with pre-existing medical conditions. “I don’t see any going back,” Mr. Zumtobel said.
Still others argue that insurers will find a way to continue selling individual policies, even if the law’s other provisions are not changed by Congress. “Insurers know their business, and they’re very good at marketing,” said Mr. Angoff, the former regulator. “The major insurers are accustomed to marketing to different segments in very sophisticated ways. They’d figure out a way to continue to do business.”