University of Michigan's Nicholas Bagley has been one of the smartest legal commentators on King v. Burwell, the Supreme Court case that challenges the legality of Obamacare's insurance subsidies. So when he raises the possibility of a ruling against Obamacare that could be even more disastrous for the law than we currently imagine, I listen.
The Supreme Court is expected to rule on the case in June, deciding whether the federal exchange used by 36 states has the legal authority to distribute Obamacare subsidies. If the justices rule against Obamacare, they will be halting financial help in those places.
Most discussions about the King case assume that states have a way to fix this problem: namely, they could go ahead and build a state-based insurance marketplace. Subsidies would start flowing again, and things would go back to normal.
Republican governors who have already expanded Medicaid would likely be amenable to moving forward on a marketplace, given that it would bring billions in subsidies back to their states.
Except that maybe it wouldn't. That's the possibility Bagley raises today on the Incidental Economist — that there's a plausible world in which the Supreme Court reads the Affordable Care Act as restricting subsidies to marketplaces that states built before 2014. Here's the key piece:
The governing assumption has been that, after the Supreme Court decides King, the states could restore subsidies to their residents by setting up their own exchanges. As Justice Alito said at oral argument, "it’s not too late for a state to establish an exchange if we were to adopt [plaintiffs’] interpretation of the statute. So going forward, there would be no harm."
But look closely at the statute. The fight in King is about the meaning of a provision of the Internal Revenue Code linking the subsidies to the cost of a plan purchased on "an Exchange established by the State under 1311." Section 1311, in turn, says that "[e]ach State shall, not later than January 1, 2014, establish an American Health Benefit Exchange."
Did the states have to hit that January 2014 deadline in order to establish exchanges "under 1311"? If so, exchanges established post-King could never be established under 1311. On that view, it would seem to follow that subsidies would be forever unavailable in thirty-four states.
Bagley isn't convinced that this argument would fly — he reads the line, in context, as a deadline for when a state has to launch a marketplace before the federal government steps in, and not as a deadline that precludes further action.
But will the legal system read it that way? If the Supreme Court rules in the King plaintiffs' favor, maybe not. "If the Supreme Court sides with the plaintiffs, it will have taken a highly literal approach to the ACA—an approach that might give juice to the argument that post-King exchanges haven’t been properly established," Bagley wrote.
And if that argument did prevail, it would mean that any state without a marketplace right now is stuck in a bind. None of the 36 states without state-based marketplaces could do anything about it.
Aside from inventing a time machine to take them back to 2013 (which would be very impressive!), legislators wouldn't have any way to restore subsidies — and would be stuck with a decision they made a few years back.