UPDATE: Another possible King v. Burwell disaster...for insurers, doctors & hospitals?

Something else just occurred to me.

Let's suppose that the Supreme Court does rule for the plaintiffs.

Let's suppose that they don't include any sort of mitigating factor, like a 6-month stay or whatever.

Let's further suppose that neither Congress nor any of the states do anything to resolve the issue (remember, Delaware and Pennsylvania may have been approved for "state-based" exchanges, but those won't officially kick in until January 2016), leaving 6.5 million people to lose their tax credits.

As I understand it, assuming no stay is issued, the earliest that the credits would be yanked would be August (I believe there's a 25-day period before rulings take effect, so July should be in the clear after all).

So. 6.5 million people receive their August premium bill, and instead of $92 (on average) it's around $364 (on average). For many, it'll be far more dramatic yet...rising from, say, $25 to $500 or whatever.

Some of these 6.5 million people (the ones at the top end, who are only receiving perhaps $20/month off of an $800 premium or whatever) are irritated, but it's not a major blow to their pocketbook and they hopefully were aware that this was gonna happen ahead of time, so they suck it up and pay up anyway. For them, it's an inconvenience only. Let's say perhaps 500K fall into this category.

For the other 6 million or so, though, it'd be devastating. No way in hell can they afford that much of a hike, so they don't pay their August premium. That's what most of the hand-wringing about King v. Burwell has been about, right?

HOWEVER, here's the other thing which just occurred to me: Under the Affordable Care Act, health insurance companies are legally required to continue covering enrollees for 90 days AFTER a missed payment.

If you're late paying your health insurance premium, how long can you delay before your policy is canceled? Most insurance companies will give customers a 30-day grace period on the faith that they'll pay up by the end of the month. But that is changing under the Affordable Care Act. The law extends that grace period to 90 days for some new insurance policies. And as Eric Whitney reports, insurance companies, doctors, and state regulators are all confused about what exactly that means.

So. What does that mean? Well, the good news (for the enrollees) is that this should mean that instead of losing their policies in August, they should be covered through the end of October. Yay!!

However, what does this mean for the insurance companies? Believe me, I'm no fan of for-profit health insurance companies, but the impact on them is relevant here.

Well, assuming 6 million people were to stop payment, it seems to me it means two things:

  • First: They'd lose out on 6 million x $364 x 3 months = $6.55 BILLION in lost premium payments.
  • Second: They'd still have to cover all 6 million people for those 3 months.

That means that, assuming the cost of various treatments, appointments, prescriptions etc. ended up falling into the 80% Medical Loss Ratio range, they'd also have to pay out upwards of $5.24 BILLION in claims to doctors, hospitals, pharmacies, etc.

NOTE: See update below; apparently this part of my thinking was incorrect after all.

But wait; if my logic here is correct, it seems to me it'd be even worse than that for the insurers.

Put yourself in the shoes of one of those 6 million people. All year you've been assuming that you can schedule that physical, that wart removal, that mammogram, that (whatever) procedure at some point or another, but you weren't in a big rush to do so. Now, all of a sudden, you only have 90 days to get 'er done.

I envision several million people scrambling to make doctors appointments and get prescriptions filled all at once, before the clock runs out.

How much more would that put the insurance companies on the hook for? How much will that hit their financials?

What if it's a smaller insurer with cash flow/liquidity issues? Will they be able to even pay the doctors & hospitals?

Just asking.

UPDATE: OK, upon reading a comment below and re-reading the NPR story above, it looks like while the insurance companies would still miss out on up to $6.5 billion in premium payments, it's the doctors and hospitals who would be on the hook for the actual services rendered.

That's not any better, of course, but it helps to clarify things.

UPDATE: This may be a partial "oops, never mind" scenario. Thanks to Louise Norris for straightening me out; apparently the 90 day grace period only applies to those receiving tax credits WHILE they're receiving tax credits. In other words, once the credits are cut off, the 90-day rule would no longer apply anyway (at least she's pretty sure about that, anyway).

I also found this explanation from the AMA's website, which is still a bit confusing:

Affordable Care Act "grace period"

Under the Affordable Care Act (ACA), if a patient who receives an advance premium tax credit does not pay his or her health insurance premiums in full, he or she enters a 90-day "grace period." During the first month of the grace period, the patient continues to have health insurance coverage, and the patient's health insurer will pay claims for health care services provided to the patient during that time.  However, if the patient enters the second or third month of the grace period, the health insurer may pend claims for services provided to the patient during that time.  If the patient pays his or her premiums in full before the end of the grace period, the patient retains health insurance coverage for the second and third months of the grace period, and the insurer will pay the pended claims.  But if the patient does not pay his or her health insurance premiums in full before the end of the grace period, the health insurer will not extend coverage for the second or third months of the grace period and will deny claims for services provided during that time.  In this case, a patient is then responsible for paying the entire bill for services rendered during the second and third months.  

Health insurers are required to notify physicians of patients' grace period status. Still, a number of questions concerning the specifics of notification, as well as other issues of concern to physicians, have yet to be addressed.  It is, therefore, important that you find out how your patients' contracted health insurance issuers will provide notice and handle other grace period issues.  It is also vital that your practice proactively take steps to minimize any potential non-payments from health insurers that are due to cancellation of coverage at the end of the grace period.

...and here's the actual language in question from the law itself.

Also, here's a good explainer of how the "grace period" thing works by Michael Kolber & Hans Leida over at Health Affairs:

The ACA grace period operates quite differently. First, of course, it lasts longer: three full months. Second, it is limited to individuals who are receiving federal subsidies for a portion of their premium and who have already paid at least one full month’s premium for the calendar year. (Data released so far indicates that the vast majority of exchange enrollees are receiving premium subsidies.) Third, insurers are required to pay claims for the first month of the grace period and notify health care providers that they may not be paid for the second and third months of the grace period. If the patient does not pay all premiums for the three-month period, coverage is terminated only to the end of the first month of the grace period.

Thus, the insurer can reject claims for only the second and third months of the grace period, despite not being paid the premium for the first month either, other than the premium subsidy it receives from the government for that month. The enrollee will not be entitled to the premium subsidy for the first month of the grace period and will be required to repay some or all of it (depending on the enrollee’s income) as part of his or her tax filing.