Highlight on Texas: Even Exchange Concerns are Bigger

A recent nationwide Gallup survey reported that Texas’ uninsured rate dropped more than 2 percent between 2013 and 2014, as more people were provided health coverage under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). But the state still had the highest uninsured rate nationwide. Nationally, the overall uninsured rate fell by 3.5 percent in 2014. Despite its uninsured rate drop, Texas is the only state in which more than 20 percent of its population is without health coverage. The high percentage is partly a consequence of the state’s reluctance to expand Medicaid or establish a state-operated marketplace.

The ACA provides for the establishment of Health Insurance Exchanges through which individuals can purchase health insurance. It also authorizes federal tax credits to low- and middle-income Americans to help offset the cost of the health coverage. By not setting up a state-operated marketplace, Texas relies upon exchanges run by the federal government. In the last open enrollment cycle that ended on February 15, 2015, more than 1 million Texans signed up for coverage on the federal Exchange. This places Texas second overall in the total number of enrollees among the 37 states on the federal marketplace.

Without a state-operated marketplace and a large number of enrollees in the federal Exchange, however, the Texans that did sign up for health insurance may be severely impacted by the eventual decision in King v. Burwell. In that case, individual residents of Virginia argued that the phrase “established by the State” in an implementing provision of the ACA made clear that health insurance subsidies were only available to enrollees living in the 16 states that set up their own exchanges. The individuals argued that the IRS erred in offering tax credits to individuals who lived in states that have federally run exchanges. As noted, Texas is one such state.

With oral argument scheduled for early March, health insurers in Texas are keeping a watchful eye on the Supreme Court’s eventual determination. If the high court finds that the subsidies were unlawful, then their elimination could affect the overall health insurance market. In Texas, 86 percent of the residents who purchased insurance on the federal Exchange received a tax subsidy that reduced their premiums by an average of 72 percent. Some industry groups have suggested that the elimination of subsidies would result in young and healthy enrollees leaving the Exchange and choosing to pay the ACA penalty rather than higher insurance prices. The loss of these younger, healthier individuals would mean that insurance rolls would have more individuals requiring medical care than not. As a consequence, insurers losing out on a larger pool of enrollees to fund health insurance plan payments could raise premiums for all of those insured, not just those who enrolled under the ACA, because of this exposure to higher risk enrollees.

In 2012 former Texas Governor Rick Perry had written a sharply worded letter to the HHS, refusing federal money to create a state-operated marketplace as a “brazen intrusion” on the state’s sovereignty. Then, just as now in Texas, political support from anti-ACA legislators, along with constituent outcry about federal government involvement, bolstered Perry’s stance. With the looming consequences of King v. Burwell, however, the current Texas administration has been quiet about opposition to a state-operated exchange.