By Katie Kerwin McCrimmon

Within days, the U.S. Supreme Court is expected to rule on whether four pivotal words in the Affordable Care Act mean that 6.4 million people in 34 states can’t get subsidies to help afford health insurance.

Those words are: “established by the state.” The plaintiffs contend that people living in states without their own health exchanges are ineligible for subsidies.

Since Colorado created its own exchange, you might think that the relevance of the King v. Burwell boils down to one word for you: “whatever.”

Think again.

The King case is likely to have profound reverberations throughout the U.S. Without subsidies in a majority of states, the “individual mandate,” which requires people to buy health insurance, likely would fall apart. And if fewer healthy people buy health insurance, prices could shift dramatically — even in states with their own exchanges.

Most important, if the justices invalidate subsidies for the federal exchange, Colorado loses a critical “escape hatch,” according to Joe Hanel who is doing analysis on the King case for the Colorado Health Institute.

Colorado’s exchange managers have struggled with IT problems that have tripped up thousands of customers since 2013. Coders working for Colorado’s Medicaid agency and the state exchange are working furiously this summer to try to fix the problems, but at the same time, a legislative oversight committee has been considering a variety of options, including pulling the plug on Colorado’s exchange.

That becomes much tougher if Colorado can’t simply default to the federal exchange, like some other states have done.

“It would be harder to pull an Oregon or Hawaii,” said Hanel, referring to two states that had such severe problems with their exchanges that they gave up and switched to the federal exchange.

If the court rules in favor of the plaintiffs, “there’s not really an escape hatch any more for Connect for Health Colorado,” said Hanel, senior communications expert for the Colorado Health Institute, a nonpartisan health policy research institute.

“Getting Connect for Health functioning well is our No. 1 mission right now. In the wake of a ruling for the King plaintiffs, that would be doubly important,” said Hanel.
Running Colorado’s exchange costs more than twice as much per year than anticipated — about $54 million compared to the long-promised $26 million.

Even with higher fees that the exchange board approved this year, a path toward financial sustainability remains a challenge, which makes the King ruling all the more important.

If the court bars subsidies through the federal exchange, Hanel said Colorado and other state-based exchanges might find themselves in a position to profit from disarray elsewhere.

“Regardless of some of the technical challenges that Connect for Health has, it would be a rare and valuable property,” Hanel said. “Some of the states that don’t have exchanges (would be) looking to stand one up quickly.”

It’s possible that Colorado could tap some additional revenue through consulting or by leasing out its system to others.

“Even though Connect for Health has had its struggles, it could be a life raft for some other states,” Hanel said.

The justices are expected to rule on Thursday, Friday or Monday, the last scheduled days to release opinions on remaining cases for the term.

When the Supreme Court issued its first blockbuster ruling on the Affordable Care Act in late June of 2012, no one guessed that the justices would uphold the act, but allow states to skip Medicaid expansion, a wrinkle that has had a profound effect on millions of people across the country.

Guessing whether the justices will rule yes or no or “split the baby again,” as Hanel describes it, is a very tricky business.

So health policy geeks are breathlessly watching the popular SCOTUSblog for any news on the ruling.

Jonathan Lockwood, executive director of the conservative advocacy group, Advancing Colorado, is betting that the justices will strike down subsidies.

If that’s the case, he thinks the ruling will underscore how little the Affordable Care Act (ACA) has done to make health care affordable.

“It will expose what Obamacare really is. The subsidies just mask the costs of health care. We hear a lot from proponents of government mandates and government health care that government is really leading the way,” Lockwood said. “The cost of health care has actually been driven up. I don’t think anyone has a plan in the world that has given them greater access to doctors, greater quality of care and lower costs all around without a subsidy.”

He calls the subsidies a “dangerous dependency,” which put us in a “really precarious position.”

Colorado lawmakers on both sides of the aisle supported Colorado’s health exchange because they preferred a “Colorado solution.”

As Colorado’s exchange has failed to operate smoothly for small businesses and individuals, conservatives have found themselves in a quandary. Do they bet the farm on the state exchange — warts and all? Do they scrap it in favor of the federal system, or do they find some kind of hybrid solution, like lumping the exchange in with Colorado’s state-run Medicaid system?

Jeff Bontrager, director of research on coverage and access for the Colorado Health Institute, testified before the legislative committee overseeing Colorado’s health exchange earlier this month and for the first time used a phrase that no one had previously said out loud: “Exit strategy.” (Click here to see Bontrager’s presentation.)

He explored a range of options.

“The entire marketplace could be privatized. It could be transitioned to a federal arrangement. I guess it could be done away with completely. This is not a light task since it’s in the statutes,” Bontrager told lawmakers.

He and others have pointed out that having a state-based exchange makes it easier track what’s going on with health reform.

“Whether you love it or hate it, there has been greater transparency in the market,” Bontrager said.

Jonathan Lockwood, of Advancing Colorado, said he expects a ruling for the plaintiffs on the King case to trigger a great deal of change.

“Having a state exchange gives us a shield in a way from the shock waves, but it still affects us. We will still feel the costs. It’s just not going to be as fast,” he said. “Our exchange is already on life support.”

At the National Conference of State Legislatures, Dick Cauchi is the program director who tracks health policy across the country.

While he said it’s very difficult to speculate about how the court will rule, interest in the case is intense among lawmakers in states with their own exchanges as well as those who have opted for the federal system.

“Certainly there are a lot of questions. We have 7,383 lawmakers across the country,” Cauchi said.

He expects repercussions regardless of how the justices rule.

“If the court were to strike down premium subsidies in federally-operated states, there certainly can be some consequences across state lines,” Cauchi said.

“Insurers that are operating in multiple states … (could) be seriously impacted in other jurisdictions, affecting their commercial structure,” he said. (Click here to see the National Conference of State Legislatures’ newest report on health exchanges through the country.)

Colorado has multiple national insurance carriers operating in the state, along with local nonprofits. The trade group that represents them all is saying little now.

“It’s too early to speculate on what the court’s decision will be,” said Sara Orrange, interim executive director for the Colorado Association of Health Plans. “While the state-based marketplaces may not have a direct impact, there could be broader policy changes made at the federal level that could impact consumers across the country.”

Joe Hanel of the Colorado Health Institute said two of the most popular theories among court watchers center on waivers from the Affordable Care Act and the so-called “death spiral.”

Stuart Butler, a fellow at the Brookings Institute, believes that the King case could intensify interest in 1332 waivers, a component of the Affordable Care Act that allows states to scrap exchanges and other mandated components of the law as long as they provide health coverage for people in their states that is at least as comprehensive as the coverage that the law requires.

Support for waivers has been gaining ground on both the right and left. In some states, policymakers want to allow both Medicaid and private health insurance customers to use subsidies to buy private health insurance directly from carriers, bypassing an exchange altogether.

Here in Colorado, Sen. Irene Aguilar, D-Denver, is pushing for a plan that would open the doors to universal health care through a waiver. States can begin using the 1332 waivers in 2017.

If the plaintiffs prevail in the King case, health insurance carriers nationally are predicting some dire consequences, most notably, the “death spiral.”

“There could be economic and political trickle-down effects,” Hanel said.

The death spiral theory predicts that if people in 34 states lose their subsidies, then many will no longer buy health insurance. Some will be allowed to ignore the individual mandate because the insurance will cost more than they can afford and they’ll qualify for a “hardship exemption.”

That could leave insurers having to accept everyone, but having mostly a pool of sick customers. Prices would rise. Fewer people could buy and insurance companies could fold.

Of course, at the moment, for-profit insurance companies are posting record profits, so the dire scenarios may not come to pass. That hasn’t stopped heavy lobbying on all sides, Hanel said.

“The insurance companies have argued forcefully against the King plaintiffs because of that. We could be in an environment where insurance markets in a majority of states are damaged,” Hanel said.

President Obama and his top lieutenants have made it very clear that they have no contingency plans if the court invalidates subsidies. That means members of Congress could soon be stuck trying to fix any messes that emerge.

“Whatever Congress does in response to this, we need to remember that it’s a national law and that it would have effects in Colorado. It’s not that the ACA is enshrined in Colorado forever and ever because Congress could always change it,” Hanel said. “King v. Burwell (could) give tremendous impetus to Congress to try to make some changes.”