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The U.S. Supreme Court could rule whether health insurance subsidies are invalid in North Carolina’s federal health insurance exchange as early as 10 am tomorrow morning. Because these subsidies are tied to the individual and employer mandates, it is estimated that over 10,000 large employers, 2.5 million employees, and over 400,000 individuals in the Tar Heel State could indeed be exempt from these penalties.

If liberated from these onerous regulations, the flow of subsidies would be halted, meaning that millions of citizens would be exposed to the full cost of Affordable Care Act health insurance rates  — increases of, on average, 317 percent.  To date, over 90 percent of North Carolina’s individual market enrollees have qualified for some discount on their health plans at the taxpayers’ expense, with average monthly subsidies amounting to $316.

Actions For North Carolina

Policy commentators weighing in on the situation suggest that chaos can be avoided by requiring states to switch from federal to state exchanges.

Yet, the operational status of over half of the nation’s state exchanges indicates that it would be a wise decision for North Carolina not to opt for a state exchange. Taxpayer money has been squandered in states such as Hawaii, Oregon, Nevada, and Massachusetts due to technological issues and incompetent management. Problems have driven some of these states to adopt the federal exchange platform. Others are attempting to cover their operational costs by levying high user fees on consumers.

If North Carolina were to make this transition, the seed money needed to establish a state exchange is no longer available from the federal government. North Carolina was once set on establishing its own exchange under Democratic Governor Beverly Perdue, but in 2013 a newly elected Republican majority passed Senate Bill 4 into law, which forfeited more than $70 million in start-up grants.

State lawmakers can, however, reconsider the excessive number of health coverage benefits currently required that may not necessarily correspond to a majority of policyholders’ health needs, or revert back to high-risk pools for patients with pre-existing health conditions. 

Health Coverage Mandates

North Carolina currently imposes over 55 coverage mandates — ranking in the top 15 states nationwide. Curiously, the 1974 Employee Retirement Income Security Act (ERISA) allows for self-insured entities, representing over 60 percent of the privately insured in North Carolina, to be exempt from state mandates. This essentially means that the costs of state regulated mandates are diffused among just 1.5 million policyholders with non-group and fully purchased employer group plans.

According to the Council for Affordable Health Insurance, it is estimated that each additional mandate increases premiums by an average of less than one percent. These incremental increases make it politically feasible for special interest groups to be heeded. During North Carolina’s 2014-15 legislative session, a number of bills have been filed calling for insurers to expand coverage for benefits such as oral cancer drugs and autism therapy, and reduce co-pays for chiropractic care. In addition to Blue Cross and Blue Shield’s projected 25 percent average premium increases for 2016 Obamacare exchange plans, The Citizen Times reports that the introduced bills could amount to an additional 16 percent rate increase if passed:

Rep. Gary Pendleton, R-Wake, an independent insurance agent handling employer health plans, stressed in an interview his sympathy for people with health needs seeking help. But he estimated that approving five pieces of pending legislation he considers mandates would increase insurance premiums by about 16 percent.

"It’ll be a rate increase on everybody insured whether they use that benefit or not," Pendleton said, adding that even with the GOP protests about President Barack Obama’s health care law, "my fellow Republicans are not serious about reducing health care costs for corporations and nonprofits."

Revert Back To High-Risk Pools

North Carolina also enacted a high-risk pool for individuals with pre-existing conditions in 2007. The program began enrollment two years later under the management and operation of Inclusive Health. The program initially cost the state $26 million and was partially subsidized by assessments on the teacher and state employee heath plan. By 2012, an estimated 6,245 individuals qualified for this program.

In 2010, an additional $145 million in federal funds was allocated to Inclusive Health under the Affordable Care Act’s pre-existing condition insurance plan (PCIP). The federal program served as an interim until the individual health insurance exchanges opened for enrollment in Fall 2013 and people could no longer be priced out of the insurance market based on health status. Although Inclusive Health suffered sustainability issues towards the end of its timeline, market-oriented health insurance reformers have long lobbied to expand high-risk pools in a fiscally solvent manner. Doing so could still cater to the needs of the uninsurable while letting the rest of the insurance market be innovative and affordable for more policyholders.

Congressional Considerations

Justice Samuel Alito also proposed the idea to stay the mandate until the following tax year as another way to ease market disruption. Some reports indicate Congressional Republicans are inclined to extend subsidies to federal exchange states in the form of block grants through 2016 — the idea being that a newly elected republican president will endorse market-reform health care legislation in 2017.

In the meantime, it would be ideal for Congress to exempt citizens residing in federal exchange states from the individual and employer mandates, along with devolving power to North Carolina to relax the most costly insurance regulations the federal health law enforces — the ten essential health benefits that must be built into every health plan, the restrictive 3:1 age rating ratio through which the young and healthy are subsidizing the old and sick, and the minimum actuarial requirements insurers must comply with.

According to the Heritage Foundation, gutting these expensive regulations could reduce average premiums by as much as 44 percent for some:

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