King v. Burwell: A Victory for the ACA
July 16, 2015
What would happen if the government stopped offering subsidies?
RAND researchers found that eliminating tax credits in the 34 states would severely disrupt the overall individual health insurance market. Specifically, eliminating tax credits in all of those states would cause:
“Premiums in the individual market to rise 43%”
“Enrollment in the individual market to fall by 68%; 70% among adults ages 18–34”
“More than 11 million Americans to become uninsured”
They also found that by eliminating subsidies in federally facilitated insurance exchanges (FFM):
“Premiums in the individual market in FFM states would rise 47%”
“Enrollment in the individual market in FFM states would fall by 70%”
“About 8 million Americans would become uninsured”
Ultimately these subsidies, in the form of tax credits, allow many Americans to be able to afford health insurance so that the overall individual insurance market is secured from falling into a “death spiral.” Therefore, if these subsidies were eliminated not only would millions of people not be able to afford health insurance, but also the insurance market would have begun to fall into severe financial jeopardy. President Obama and Congress would then have had to scramble to find a quick solution to prevent such a catastrophe.
Review of the Court’s Decision
In the Opinion of the Court, Chief Justice Roberts first discusses three core reforms of the ACA (insurance regulation in the form of guaranteed issue and community rating requirements, an individual mandate, and tax credits to individuals) and the critical importance that all three are being upheld to maintain the integrity of the Act. King et al. argue that the Act states that an individual may be eligible for a tax credit if he is enrolled in an insurance plan through “an Exchange established by the State”, meaning that subsidies should not be available to individuals who gain insurance through federally run exchanges. The Government rebuts that this phrase should be read to include federal exchanges.
Roberts continues that when judging an agency’s interpretation of a law, the Justices applied the two-step framework utilized in Chevron U.S.A., Inc. v. NRDC. First, they examine whether the statute is ambiguous; then, they determine if the agency’s interpretation of the statute is reasonable. But, Roberts quotes from FDA v. Brown & Williamson Tobacco Corp, “In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.” And Roberts states that King v. Burwell is such a case. Tax credits are a core reform of the ACA, involve billions of dollars, and affect the price of health insurance for millions of people. He states that had Congress intended to delegate the role of determining whether or not users of federal exchanges can qualify for tax credit to an agency, they would have expressly named one. Thus, it follows that the Supreme Court must determine the true intent of the law.
Section 36B of the Internal Revenue Code concerns refundable credit for coverage under a qualified health plan. It allows an individual to receive tax credits to buy an insurance plan exclusively if the individuals enrolls in a plan through “an Exchange established by the State under [42 U.S.C. Section 18031].” Thus, he outlines that three things must be true: first, that the individual must enroll in an insurance plan through an exchange; second, that the exchange must be established by the State; and third, that exchange must be established under [42 U.S.C. Section 18031]. The controversy is surrounding the second requirement, which Roberts posits is not clear when read in the context of the overall Act. Roberts points out two examples in which the Act, if it indeed meant to refer only to an exchange established by the state as a state exchange and not including federal exchanges, would not make sense. Section 18032 defines those who are eligible for health plans through the exchange as “qualified individuals” who “reside in the State that established the Exchange.” If the wording were taken at face value, there would be no qualified individuals on the Federal Exchanges, though, Roberts states, “the Act clearly contemplates that there will be qualified individuals on every Exchange.” Additionally, the Act states that the health plans the exchanges offer should consider “the interests of qualified individuals … in the State or States in which such Exchange operates,” which would be similarly exclusionary of individuals using the federal exchange; Thus, Roberts concludes, “[t]hese provisions suggest that the Act may not always use the phrase ‘established by that State’ in its most natural sense. Thus, the meaning of that phrase may not be as clear as it appears when read out of context.”
Roberts also states that in Section 18041, which that allows the Secretary of Health and Human Services to create “such [an] Exchange” in a state if the state does not create one. This, he says, indicates that state and federal exchangers should be the same. But if only state exchanges benefitted from tax credits, they would be fundamentally different Roberts concludes the Opinion of the Court by asserting that Section 36B is not only ambiguous, and that when considered correctly in the context of the laws, intends that tax credits be able on federal exchanges as well.
Justice Scalia wrote the dissent; in a summary both of this case and the strong tone he uses throughout the dissent, he writes, “the Court’s interpretation clashes with a statutory definition, renders words inoperative in at least seven separate provisions of the Act, overlooks the contrast between provisions that say ‘Exchange’ and those that say ‘Exchange established by the State,’ gives the same phrase one meaning for purposes of tax credits but an entirely different meaning for other purposes, and (let us not forget) contradicts the ordinary meaning of the words Congress used.” Specifically, he disagrees with a number of key points of Roberts’ opinion.
Scalia asserts that federal exchanges established in states that do not form their own can operate without tax credits; unlike Roberts, who states that all three of the main reforms of the ACA must all be upheld in order to increase the number of insured individuals, Scalia posits that guaranteed issue and community rating requirements, and the individual mandate are sufficient. Continuing his spirited criticism of the Opinion of the Court, he states that the phrase “Exchange established by the State” appears seven times of the Act that mentions tax credits, and that it is unlikely that Congress would have mistakenly left out any reference to federal exchange each of the those many times. He states that the Court should have only interpreted the law as written by Congress as opposed to “interpreting” it, and memorably asserts that the Court has effectively rewritten the law to “uphold and assist its favorite” to the extent that it should instead be called “SCOTUScare”.
The Future of Healthcare Reform
The King decision affirmed that the ACA is and will continue to be key legislation responsible for advancing and improving the U.S. healthcare system. It even solidified the notion that, as President Obama said, “The Affordable Care Act is here to stay.” Yet, as the U.S. continues forward with the ACA, it is important to realize that the Act is not infallible and there are still important areas of the law and its implementation that need to be changed and revised.
Observers noted that several of the 14 states that established their own exchanges might decide to switch over to the federal exchange. These pioneer states that embraced the law, and its core concept of the transparent insurance exchange, will soon face difficulties in maintaining their exchange websites due to technological complexity and dried up federal and state funding. Now that the potential risk of losing tax credit subsidies for purchasing coverage through the Healthcare.gov exchange has been averted, it might not be as difficult for states like Vermont and Hawaii to make the change from a state-based exchange to a federal one – in essence, outsourcing. Margot Sanger-Katz wrote in the New York Times last month that, “If the court had ruled for the health law’s challengers, we would have seen more states adopting the state-based model to preserve subsidies for their residents. Now that the government has won, movement is likely to be in the other direction.” However, it remains an open question whether switching from a specialized state exchange to a more generic federal one will be so simple.
The ruling has also brought to the fore another decision facing some states: whether or not to expand Medicaid eligibility using federal funding. 19 states, most of which are under Republican leadership, have not moved forward with expansion. However, the tide is starting to turn as the ACA gains strength in measurements of both judicial and public opinion. Last month President Obama traveled to Tennessee, a state where, like in many others, hospitals and insurers want Medicaid expansion while the conservative-leaning state legislature and governor are against expansion. The reasons for opposition are a combination of blanket political resistance to the ACA, concerns over long-term budget sustainability, and concerns of diminished state-based autonomy regarding how to provide healthcare for low-income populations.
Even patients who have private insurance will begin to feel the pinch: most insurance companies are requesting double-digit increases in 2016 for individual plans, including those purchased through exchanges, due to higher-than-estimated claims from enrollees under the Affordable Care Act. While supporters of the law applaud the fact that people are making use of their new access to long-needed care, insurance companies will have to make upward premium adjustments that affect all beneficiaries. These premium increases will not help the President’s case as he strives to secure the healthcare cost-reduction legacy of the Affordable Care Act.
These issues with the ACA are important to address as the U.S. continues implementing provisions of the Act and working on reforming our healthcare system for the future. And despite the ACA’s success and future changes, it will continue to face legal challenges and calls for repeal by many of its challengers; it will also continue to be a much discussed and debated piece of legislation in the upcoming 2016 presidential race.
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