The Supreme Court hears arguments next week in a case that could dismember Obamacare.
If the high court rules in favor of the law’s challengers in King v. Burwell, more than eight million people in 34 states could lose coverage under the Affordable Care Act, according to a study done for the Pew Charitable Trusts. Most of the people affected would be white, employed, lower- to middle-class, and concentrated in the South. Health insurance premiums would spike by 35 percent in those states, making coverage unaffordable for everyone, both those who receive tax credits and those who don’t qualify.
The decision in the case, expected in June, hinges on whether the law, as written, bars the federal government from offering tax relief to buyers who purchase health insurance through the federal exchange, set up to offer coverage to people living in states that elected not to create their own exchanges. Federal subsidies are at the heart of the law, because they underlie the basic deal: Everyone must have insurance, but those who can’t afford the premiums will receive help from the federal government.
The plaintiffs are not arguing grand constitutional principles, such as were at stake in the 2012 ruling on the ACA’s constitutionality. The current argument centers on statutory interpretation: Can individuals who buy health insurance through the federal exchange receive tax credits? In other words, what does the text of the ACA really say and what did Congress intend when it voted for the law?
Under the law, states had an option: They could erect their own exchanges, or they could choose to participate in a federally run exchange. The plaintiffs in King say the law authorizes tax credits only to purchasers in exchanges “established by the state,” with no reference to the exchange run by the federal government. The plaintiffs claim that means if you live in a state that created its own exchange — say, California, Kentucky, or Maryland — you are entitled to tax credits. But if you live in states that did not create their own exchange but relied on the federal exchange — such as Florida and Texas — then you are not entitled to tax credits.
It is necessary to go back to the ACA’s drafting to understand the current confusion. In 2009 and 2010 lawmakers debated whether to create one giant federal exchange or 50 state exchanges. Liberal Democrats in Congress favored one big exchange, but some more conservative Democrats, led by then-Senator Ben Nelson of Nebraska, preferred state-based exchanges, and their votes were necessary to break a Republican filibuster.
Now, this was back in the days when members of Congress engaged in compromises to achieve larger goals, and so Nelson got his way. But did that way preclude tax subsidies for those who buy in the federal exchange? Nelson recently answered that question with a resounding no: “I always believed that tax credits should be available in all 50 states regardless of who built the exchange, and the final law also reflects that belief as well.”
Nelson’s argument has received support from a brief written by the Virginia attorney general’s office on behalf of a coalition of 23 red-state and blue-state attorneys general. “Every state engaged in extensive deliberations to select the exchange best suited to its needs,” the brief maintains. “None had reason to believe that choosing a federally facilitated exchange would alter so fundamental a feature of the ACA as the availability of tax credits. Nothing in the ACA provided clear notice of that risk, and retroactively imposing such a new condition now would upend the bargain the states thought they had struck.”
Iowa, Maine, Mississippi, North Carolina, and Pennsylvania are among the states that have declined to create their own exchanges but have joined the Virginia brief (Virginia also relies on the federal exchange). These states fear havoc in the insurance marketplaces if the Supreme Court rules in favor of the plaintiffs. States with exchanges, such as California, Maryland and New York, also signed the brief because they, too, fear disruptions if tax credits are struck down. These states worry that premiums will rise for everyone, regardless of where they purchased insurance because the insurance companies that sell policies in the federal exchange are national companies and base their rates on national demographics. The withdrawal of millions of healthy people from the insurance pool, which would happen in states relying on the federal exchange if the plaintiffs triumph, would spill over to states with their own exchanges, causing premiums to spike nationally.
Congress could provide a fix by redrafting the confusing phrase in the law. That’s not likely, given the determination of Republicans to repeal the ACA. The states could individually correct the problem, but some red states would decline and others probably don’t have the resources or technical ability to prevent large-scale disruptions.
That leaves it up the Supreme Court to insure that the ACA avoids the “death spiral” of ever-increasing premiums it was intended to prevent. The members of the court — including the most conservative justices — have always argued that the language of a statute has to be understood in its context. As Chief Justice John Roberts wrote in an earlier decision, “The sun may be a star, but ‘starry sky’ does not refer to a bright summer day.”
Well, Mr. Chief Justice, the context of the language in the ACA is clear: Nothing in the law suggests Congress intended to deny tax credits to people who buy insurance in the federal exchange. Alternatively, the court could interpret the word “state” to mean any governmental entity, including the federal government or 50 states.
Either way, the decision should be obvious and easy.