In a significant victory for the Obama administration, the Supreme Court voted in a 6-3 decision in King v. Burwell that the Affordable Care Act authorized federal tax credits for eligible Americans living not only in states with their own exchanges but also in the 34 states with federal exchanges. Here is what you should know about the case and the ruling.
What was the case about?
At the core of the Affordable Care Act (aka Obamacare), the Court noted, were three key reforms: (1) Guaranteed issue and community rating requirements, (2) Require individuals to maintain health insurance coverage or make a payment to the IRS, unless the cost of buying insurance would exceed eight percent of that individual’s income, and (3) Seek to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 per cent and 400 percent of the federal poverty line
Additionally, Obamacare requires the creation of an “Exchange” in each State—basically, a marketplace that allows people to compare and purchase insurance plans. The law gives each State the opportunity to establish its own Exchange, but provides that the federal government will establish “such Exchange” if the State does not. This case hinged on what “an Exchange established by the State under [42 U. S. C. §18031]” could mean since several individual states refused to establish their own exchanges.
The Internal Revenue Service interpreted the wording broadly to authorize the subsidy also for insurance purchased on an Exchange established by the federal government. The four individuals who challenged the law argued that a federal Exchange is not an “Exchange established by the State,” and section 36B does not authorize the IRS to provide tax credits for insurance purchased on federal Exchanges. Several district courts agreed with the government, but because one sided with the plaintiffs the case ended up at the Supreme Court.
Can you explain that without the legalese?
The federal government tried to say that when they wrote “Exchange established by the State,” they meant established by the individual states or by the federal government. The lower court ruled that in the context of the Obamacare law, that reading doesn’t make much sense. The law has to be read as meaning what it says (as written) not as the Obama administration wishes to interpret it after the fact. If the ruling had stood, the people receiving subsidies would have had to pay for the full cost of their Obamacare premiums rather than having a portion covered by taxpayers.
Why would that have been such a problem?
Without subsidies being available in all the 50 states, the law would have made insurance unaffordable and led to “death spirals.” As Sean Parnell explains,
A death spiral generally occurs when insurers are forced to raise premiums sharply to pay promised benefits. Higher premiums cause many of the healthiest policyholders, who already pay far more in premiums than they receive in benefits, to drop coverage.
When healthy policyholders drop coverage, it leaves the insurer with little choice but to raise premiums again because they now have a risk pool that is less healthy than before. But another premium increase means many of the healthy people who remained now drop their policies, too, and this continues until the only people willing to pay the now-very-high premiums are those with serious medical conditions.
The “death spirals” would have effectively killed the Affordable Health Care Act since it would make health insurance even less affordable.
What did the Supreme Court decide?
In a 6-3 decision, with Justices Roberts and Kennedy joining the liberals, the Court sided with the Obama administration. Justice Roberts wrote,
Petitioners’ plain-meaning arguments are strong, but the Act’s context and structure compel the conclusion that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.
What was the Court’s reasoning on the ruling?
The majority decision makes several points:
- Congress never intended for the law to be interpreted by the IRS (“…had Congress wished to assign that question to an agency, it surely would have done so expressly. And it is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort.” [emphasis in original]).
- The meaning of the phrase in dispute is indeed ambiguous, so the Court has to decide what it means.
- Because reading the phrase to exclude federal exchanges would lead to “death spirals,” that can’t be what Congress intended. Therefore, the Court should interpret the phrase in a way “to avoid the type of calamitous result that Congress plainly meant to avoid.”
What did the justices who disagree have to say?
Justice Scalia wrote a scathing rebuttal for the three dissenting justices. He opens by saying,
The Court holds that when the Patient Protection and Affordable Care Act says “Exchange established by the State” it means “Exchange established by the State or the Federal Government.” That is of course quite absurd, and the Court’s 21 pages of explanation make it no less so.
As Scalia adds, “This case requires us to decide whether someone who buys insurance on an Exchange established by the Secretary gets tax credits. You would think the answer would be obvious—so obvious there would hardly be a need for the Supreme Court to hear a case about it.” The reason, he notes, is that the Secretary of Health and Human Services is not a State. So an Exchange established by the Secretary is not an Exchange established by the State.
“Words no longer have meaning if an Exchange that is not established by a State is ‘established by the State,’” notes Scalia.
His summary statement is particularly damning,
Under all the usual rules of interpretation, in short, the Government should lose this case. But normal rules of interpretation seem always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved.
According to Scalia, this case and the previous controversial Supreme Court decision on Obamacare (National Federation of Independent Business v. Sebelius), “will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites.”
What happens now for Obamacare?
The Roberts Court has sent a clear message that Obamacare will not be undone by any court decision. If critics want to do away with it, they’ll have to have Congress repeal the law. Otherwise, it will continue to remain the law of the land.