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Insurers Alter Obamacare Contracts Out Of Fear That Subsidies Could Be Struck Down

Insurance companies bought into Obamacare exchanges with the promise that federal premium subsidies would convince more people to sign up, but they appear to be getting worried about pending lawsuits that could end the subsidies in federal exchanges.

According to insurance news service Inside Health Policy, insurance companies offering plans on HealthCare.gov this year had a new clause inserted into their contracts with Obamacare administrator the Centers for Medicare and Medicaid Services that allows them to cancel plans if federal premium subsidies are eliminated.

Forbes’ contributor and Obamacare subsidy expert Michael Cannon, who highlighted the change, argues that this could spark Supreme Court review of the legality of premium subsidies in federal exchanges.

The contract says that insurers’ participation in HealthCare.gov exchanges is “based on the assumption that [premium subsidies] and [other cost-sharing subsidies] will be available to qualifying Enrollees,” according to Forbes. “In the event that this assumption ceases to be valid during the term of this Agreement, CMS acknowledges that the Issuer could have cause to terminate this Agreement subject to applicable state and federal law.”

That’s a real possibility — and one that would be disastrous for Obamacare exchanges and the insurers that are selling plans on them. If all premium subsidies were done away with, an HHS-sponsored Rand Corporation study found that Obamacare exchanges would fall into a “death spiral.” (RELATED: HHS-Funded Study: Obamacare Will Suffer ‘Death Spiral’ If Subsidies Fail)

Most customers would not be able to afford the actual price of their Obamacare exchange coverage. At the end of the first enrollment period in mid-April, 86 percent of HealthCare.gov had some level of financial assistance, along with 82 percent of sign-ups in state-run exchanges.

Were the subsidies eliminated, according to Rand, Obamacare enrollment would fall by 68 percent (after premiums skyrocketed by over 43 percent). That would be catastrophic for the insurance companies on the exchanges — who now have their guarantee that they can pull out if the subsidies disappear, doling out their own final death blow to the exchanges.

It’s still up in the air about whether Obamacare subsidies will falter at all, but now that challenges are coming in from all over, insurance companies want their own insurance for their participation in the Obamacare exchanges. There are four top pending lawsuits that challenge an IRS rule which says it authorizes Obamacare premium subsidies in the federally-run exchange.

Two cases — Halbig v. Burwell and King v. Burwell — made it through federal appeals courts this summer, just one step away from the Supreme Court. The D.C. circuit court ruled that federal exchange subsidies are illegal but agreed to re-hear the case with a panel of each and every circuit court judge; the Fourth Circuit ruled that they’re admissible. The plaintiffs in both lawsuits have asked the Supreme Court to hear their cases.  

On top of that, a federal district court ruled the subsidies illegal yet again just last month in Pruitt v. Burwell. Next up is Indiana v. Irs, yet another case that targets the subsidies. A federal district court in Indiana heard oral arguments on the case earlier this month.

All in all, Obamacare subsidies are far from safe — and both the Obama administration and Obamacare insurers seem to be preparing for the possibility that the courts will turn against them.

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