Health Care Reform, Subsidies

King v Burwell: ACA Round 2 at the US Supreme Court

The federal Affordable Care Act went before the Supreme Court again yesterday (March 4th). The case was King v Burwell.  The issue before the court yesterday was whether the IRS, in issuing regulations allowing tax credit subsidies in the federal exchange, had properly interpreted four words in the ACA:  “established by the state.”  In 2012 the ACA case before the Supreme Court was NFIB v Sebelius, in which the issue was whether the individual mandate was constitutional. In that case, the Supreme Court held 5-4 that the individual mandate was constitutional as a tax, but not as a mandate with a penalty.

Click here for a prior Leavitt article on King v Burwell

The Issue

The specific issue on which the Supreme Court heard oral arguments was:  “Whether the Internal Revenue Service may permissibly promulgate regulations to extend tax-credit subsidies to coverage purchased through exchanges established by the federal government under Section 1321 of the Patient Protection and Affordable Care Act.”

The common understanding of the issue is whether federal tax subsidies are available only to people who purchase individual health policies in state exchanges, or whether they are also available to people who buy insurance in the federal exchange (healthcare.gov).  Internal Revenue Code Section 36B (added by the ACA) says that tax credits are available only on health insurance exchanges “established by the state.”  The Administration argues that the overall intent of the ACA is clearly to provide tax credits in both federal and state exchanges, and others have argued that the law falls apart otherwise.

The Court’s decision has significant ramifications, since only 13 states and the District of Columbia have established state exchanges, while 37 states have federal exchanges (although some of these are hybrid state-federal exchanges). If the Supreme Court rules that tax subsidies apply only in state exchanges, it is estimated that 7.5 million of the enrollees in the federal exchange will lose their subsidies, according to a report by Avalere Health released in late February, and it is widely believed most of them will drop coverage because the unsubsidized cost will be so high.

How are the Justices Expected to Rule?

The three more conservative justices on the court are expected to rule in favor of King and the other three challengers, who argue that the ACA allows tax credits only on health insurance exchanges “established by the state” and not on healthcare.gov, the federal exchange.  These justices are Antonin Scalia, Samuel Alito and Clarence Thomas.

During oral argument, Justice Alito asked:  “If Congress did not mean ‘established by the state’ to mean what it normally means, why did they use that language?”

On the other hand, the four liberal justices are expected to rule for the government, that  the phrase “established by the state” includes both federal and state-run exchanges and that to interpret it narrowly would run counter to the rest of the law.  These four justices are Elena Kagan, Sonia Sotomayor, Stephen Breyer, and Ruth Bader Ginsburg.

During oral argument, Justice Elena Kagan commented that if the Court were to interpret the law as the challengers suggest, “there will be no customers and no products” on the federal exchange, because no one would be eligible. “When you’re interpreting a statute generally, you try to make it make sense as a whole,” she said.

The two swing votes are Chief Justice John Roberts and Justice Anthony Kennedy, and writers who heard oral arguments yesterday agreed it was not clear where they stand on the issue.  Chief Justice Roberts asked no questions.  Three years ago, in NFIB v Sebelius, it was Chief Justice Roberts who joined with the more liberal Justices on the Court and upheld the constitutionality of the “individual mandate” provision in the ACA, which requires people to pay a “tax” (not a “penalty) if they did not have health insurance for the year.  Justice Kennedy, a conservative who has often cast the deciding vote, questioned attorneys on both sides – indicating his concern that ruling in favor of the petitioners could unconstitutionally coerce the states into establishing state exchanges to avoid a “death spiral”, but also expressing concern with the government’s position that the ACA intended the subsidies to apply in all exchanges even though it says they are available in exchanges “established by the state.”

Various articles noted that after the Supreme Court heard oral arguments, “both sides predicted victory.”

The Court is expected to issue its decision by the end of June.

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Click below to read the full Transcript (97 pages)

Arguments before Supreme Court in King V. Burwell

Information on what the justices said at oral arguments, and what each side claimed after oral arguments,  was gathered from various articles, including:

Amy Howe, SOCTUSblog,  March 4, 2015  

Articles from KFF

Lawrence Hurley, Reuters

Oral argument audio and transcript  (March 4, 2015)