The Supreme Court is taking up Obamacare again. And it could prove disastrous for the administration — and for millions of individuals and families who have found affordable coverage under the law.
Later this month, the high court will issue a decision in King v. Burwell, a lawsuit that contests the financial help available to some enrollees on the federal insurance exchanges in 34 states. Without subsidies, health reform starts to fall apart.
The decision will be a crucial moment for the Affordable Care Act. The law has faced numerous challenges and threats of repeal since President Obama signed it in 2010, including two previous Supreme Court cases and the 2012 presidential election.
If the Obama administration prevails in King, the law will have arguably defeated its last, major hurdle — and cement its place in history.
But if the Supreme Court rules against Obamacare, it would end subsidies for millions of Americans and throw individual insurance markets into chaos.
"This is the most significant threat out there," says Ron Pollack, executive director health advocacy group Families USA. "If we win, I'd call that a monumental step."
Why is this case such a big deal?
In King v. Burwell, health-law challengers argue that the federal exchange, Healthcare.gov, doesn't have the legal authority to distribute Obamacare tax credits that help low and middle-income Americans purchase coverage. Since most states rely on Healthcare.gov as their Obamacare marketplace, a decision in favor of the challengers would have a sweeping impact.
In Obamacare's first year, 34 states defaulted to Healthcare.gov, the federally-coordinated exchange. An estimated 87 percent of individuals who enrolled through the website are receiving subsidies — the precise subsidies that this court case calls into question.
Without subsidies, private insurance become unaffordable for many people who have already enrolled. The Obama administration estimates that 6.4 million Americans currently get financial subsidies through Healthcare.gov
If the plaintiffs prevail and subsidies are withdrawn, healthy people would drop their coverage, and only the people who are very sick — and therefore very expensive to insure — would keep their plans.
This sets up the classic insurance "death spiral". By putting coverage out of financial reach for so many people, it would undermine the entire purpose of the Affordable Care Act.
What's the argument against subsidies on Healthcare.gov?
The Affordable Care Act provided for the creation of different types of insurance exchanges. Fourteen states and DC established "state-based" exchanges, which give them more flexibility and authority in controlling their Obamacare markets.
In the event that a state chose not to establish its own exchange, the Affordable Care Act dictates that the federal government would step in and create a "federally-facilitated" exchange. There's also a middle ground for partnership exchanges, where states and feds share authority. Healthcare.gov is the face of federally-facilitated and partnership exchanges.
These different types of exchanges were set up by different parts of the health law. But the part of the Affordable Care Act that calculates the subsidies specifies that those subsidies are available to people "enrolled in through an Exchange established by the State under 1311" — the section that sets up state-based exchanges. It does not reference section 1321, which sets up the federal and partnership marketplaces.
Because it's written that way, the plaintiffs argue that subsidies are only available in the 14 states that established their own exchanges.
Why would the law prohibit states from getting subsidies unless they set up their own exchange?
To be clear, the administration is arguing that the law doesn't do this at all.
But the plaintiffs claim that the subsidies — in addition to making insurance more affordable for millions of Americans — were supposed to function as a carrot, encouraging states to set up their own exchanges. If a state set up its own exchange, its citizens would receive subsidies. If the state didn't, its citizens wouldn't. According to the plaintiffs' telling, this was a political decision to win over moderate Democrats opposed to federal control of insurance marketplaces.
What's the government's defense?
The government's first line of defense hinges heavily on a single word.
Word choice carries a lot of weight in legal interpretation. The part of the Affordable Care Act that creates federally-facilitated exchanges says that when a state doesn't set up its own marketplace, the federal government "shall establish and operate such exchange". According to the administration, the word "such" implies that federal exchanges effectively step into the shoes of state exchanges.
But their defense doesn't end there. The government argues that if it isn't obvious that the law intends federally-facilitated exchanges be functionally equivalent to state exchanges, then the law is at least ambiguous on the point.
You can't examine the part of the statute that sets up federally-facilitated exchanges in isolation, the government says; you have to look at it in the broader context of the reform law. Since affordable coverage is a core tenet of the law, to say that people in state and federal exchanges aren't equally entitled to tax credits would set the law at war with itself. In the government's view, that could be enough to call it ambiguous on its face.
There are cues within the text of the law that suggest Congress might not have been precise in the words that it chose. In oral arguments for King, the government pointed to a line stipulating that only people who "resid[e] in the State that established the Exchange" can buy insurance. Read literally, the government argued, that would mean no one could buy insurance on federally-established exchanges — the marketplaces would exist, but would have no legal customers, an absurd proposition.
Ergo, it's possible that Congress used phrases like "established by the State" when they meant exchanges more generally. When a law is ambiguous, the courts defer to the interpretation of the agency responsible for implementation. And implementation has proceeded under agency assumptions that subsidies are authorized on both federally-run and state-based exchanges.
What do we actually know about what Congress intended?
Early bills that eventually became the Affordable Care Act were conflicted about whether exchanges should be coordinated at the state or federal level — the House bill called for a national marketplace, the Senate bill for state exchanges. But few legal scholars or health reform spectators lend credence to the claim that Congress intended to tie subsidies exclusively to state exchanges in the final legislation.
"No sentient being following the health care debate could argue, in good faith, that Obamacare's architects intended for the federal government to set up exchanges without subsidies," wrote Jonathan Cohn in 2012. "It would completely subvert the law's intent."
A small but dedicated corps of journalists covered the minutiae of the health reform debate as Congress hashed out the details.
"Congress battled over how generous the tax credits ought to be. There was a vicious argument over whether they would cover abortions," wrote Vox's Sarah Kliff in July. "But Congress never debated whether they would limit the subsidies to states that built their own exchanges."
Compare this to the Medicaid expansion: as the Affordable Care Act was originally written, states needed to expand the program or forfeit all federal Medicaid funding. This incensed conservative states. It incensed them so much that they brought a lawsuit against the federal government, claiming that expansion requirements were coercive — a lawsuit they won.
But none of the states made noises suggesting that the law coerced them into building their own exchanges. "There was not a breath during the legislative debate suggesting that Congress meant to deprive citizens in states with federally-facilitated exchanges of tax credits," said Bagley, the law professor.
Is this really an argument over a drafting error?
This case keys in on what appears to many outside observers to have been poorly-crafted legislative language.
Thinking about this as a "typo" isn't quite accurate. Insofar as people believe it's a drafting error, it's conceptualized more as a matter of sloppy drafting: the final version of the Affordable Care Act was a messy marriage of two Senate bills.
When Senator Ted Kennedy died in 2009 and was replaced by Republican Senator Scott Brown, Democrats no longer had a filibuster-proof majority in the Senate. So the law was passed through an unorthodox budgetary process. As a result it never went to conference committee, where messy drafting gets cleaned up. As a result, the text of the law may be less precise than statutory language usually is. There is evidence elsewhere in the law that Congress was not careful in differentiating between "exchanges established by the state" and exchanges more generally.
Yet, even though this is what many people who followed the legislation think happened, neither side is asserting that there is a "mistake" in the way the law was written.
The government has been hesitant to frame its argument around an error in how the law was drafted because it's possible that the court would hold the government to the text of the law — even if that text is flawed and contrary to Congress's original intent. Framing it as an "error," then, could result in losing the suit.
Two legal scholars widely acknowledged to be the architects of the lawsuit initially described this as a "glitch" in the law's text. They have since revised their opinion, asserting that subsequent research uncovered legislative history that provides evidence that this was what Congress planned to do.
What should we expect if the Supreme Court strikes down subsidies on federally-run exchanges?
Supreme Court decisions are notoriously hard to predict. But if the justices strike down subsidies on the federally-run exchanges, it would near certainly create a giant mess.
There is no quick fix to restore the subsidies. The White House won't have the legal authority to dole out the insurance subsidies. Congress would need to pass new legislation allow the financial help to start flowing again, but it's unlikely the president and Republicans will settle on an Obamacare plan they both like.
States could decide to build their own marketplaces, but doing so for the next open enrollment period (which begins in November) would be a logistical challenge. And, politically, many Republican governors — particularly those who oppose Medicaid expansion — would be unlikely to help implement a major Obamacare program.
With no clear solution in sight, a ruling against Obamacare in King v. Burwell likely means a ruling where millions of Americans lose health insurance coverage.