Texas Has High Stakes in Lawsuit Over Health Law

When former Gov. Rick Perry declined to create an insurance marketplace in Texas under the Affordable Care Act, he put his foot down with dramatic flair.

For Perry, accepting federal money to create a state insurance exchange would have meant acquiescing to yet another of the Obama administration’s “brazen intrusions into the sovereignty of our state,” he wrote in a scathing letter in 2012 to the president’s then-health czar, Kathleen Sebelius.

Nearly 1 million Texans have now signed up for health insurance on the federal marketplace, known as healthcare.gov. But Texas, and 33 other states that did not create their own exchanges, will be the most vulnerable if the U.S. Supreme Court rules against the Obama administration in the latest lawsuit challenging the Affordable Care Act, health policy experts say.

At issue are federal tax subsidies, a cornerstone of the law, given to people who cannot afford the full cost of insurance premiums. The lawsuit, known as King v. Burwell, questions whether the Internal Revenue Service can give tax credits to people who purchased plans on the federal exchange. The challengers say no, pointing to a provision of an IRS rule that links subsidies to an “exchange established by the State,” wording that some of the health law’s authors have described as a drafting error.

Not surprisingly, Texas’ Republican leaders say they support the case against President Obama’s signature health law. But spokesmen for Gov. Greg Abbott and Lt. Gov. Dan Patrick declined to say whether they oppose the creation of a state exchange, as Perry did.

“This lawsuit highlights more evidence that Obamacare is a broken law that is bad for patients, doctors and taxpayers,” said John Wittman, an Abbott spokesman. “Gov. Abbott believes that Texas should be able to address our unique health care situation without federal interference, putting patients and doctors in charge of health care decisions.”

U.S. Sens. John Cornyn and Ted Cruz, Texas Republicans, signed on to an amicus brief arguing against the subsidies.

Oral arguments in the case are scheduled for March, and the high court’s decision could come as early as June. If the high court rules that subsidies are not allowed for Texans and others in states without their own exchanges, the ripple effects could be striking. One insurance industry group, in a court brief supporting the subsidies, said eliminating them would trigger a "death spiral" of premium increases and market destabilization.

Without assistance from the federal government, many young and healthy enrollees “are simply going to drop” their health plans, while the sickest people would remain in the market, said Nicholas Bagley, a professor at the University of Michigan Law School. That would expose insurers to greater risk, causing them to hike their rates for all customers, not just those who entered the system through Obamacare plans.

“Holy shit, that’s chaos,” said Robert Laszewski, a health policy consultant in D.C. “What’s ironic here is not only will the Republicans be screwing up the insurance for poor people on the Obamacare exchange, they’ll be screwing up health insurance for rich people in Texas who happen to be in the individual market.”

Now, Democrats and other advocates for the uninsured say Texas should prepare for the worst-case scenario by setting up its own exchange. State Rep. Chris Turner, D-Grand Prairie, has filed two bills to do so.

“My motivation was to say that we ought to create a state exchange so that even if the court rules with the plaintiffs, Texas citizens will not see a tax increase or will not have to lose their health insurance policy,” he said. “I hope that my colleagues and leadership will look at this not as a referendum on the Affordable Care Act. It’s simply a bill that says it’s a good thing for Texans to be able to buy health insurance.”

Eighty-six percent of Texans who purchased insurance on the federal exchange received a tax credit. The average subsidy was $242 per month, or about a 72 percent reduction to their health insurance premium.

So far, state leaders have been tight-lipped about what, if anything, they are doing to prepare for a high court ruling. John Greeley, a spokesman for the Texas Department of Insurance, referred questions about King v. Burwell to “state leadership.”

“We’re not gonna weigh in,” he said. As for the state’s decision to create an insurance exchange, he said, “that has not been our call, from the very beginning.”

Representatives for Texas’ largest health insurers also declined to comment.

“Blue Cross and Blue Shield of Texas is waiting for further guidance from the federal government as this situation plays out,” company spokeswoman Margaret Jarvis said in a written statement, though a trade group representing the insurer has written to the Supreme Court in support of the subsidies.

The hesitancy for state leaders to act is based on red-state political opposition to the Affordable Care Act, Bagley said. 

“There are formidable political obstacles in Texas, because there are so many people who have been elected on a strident anti-Obamacare platform,” he said. “I think it’s going to be very hard for Texas legislators to take the votes to actually fix this problem.”

Disclosure: Blue Cross and Blue Shield of Texas is a corporate sponsor of The Texas Tribune in 2013. A complete list of Tribune donors and sponsors can be viewed here.

This story was produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.