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King v. Burwell won’t destroy Obamacare

Not quite.
Not quite.
Chris Maddaloni/CQ Roll Call

What happens if the Supreme Court rules for the plaintiffs in King v. Burwell? The simplest answer is that Republican states get screwed.

You wouldn't know that from the political debate, which pits Democrats who fear a ruling for the plaintiffs against Republicans who welcome one. But both sides are operating under an outdated model of the politics around Obamacare — one in which the law's survival remains an open question.

It's not. Obamacare is here to stay — as even congressional Republicans now realize. And the King v. Burwell case doesn't threaten the law itself. It threatens Republican states that don't want to implement the law. Residents in those states will end up paying a huge amount of money to fund a law that delivers no benefits to them and their state — and, in fact, turns their insurance market into a disaster zone.

More importantly, King v. Burwell threatens the 6.4 million people receiving insurance subsidies in states that don't want to implement the law. For them, an adverse ruling by the Supreme Court won't just be an interesting political story — it'll be a genuine disaster that may leave them unable to afford care they badly need.

In the states that want to implement Obamacare, however, the law will be just fine — in fact, it will be entirely unaffected. And, over time, most or all states will decide to implement Obamacare.

King v. Burwell challenges a regulation, not Obamacare itself

The extremely smart Larry Levitt, a vice president at the Kaiser Family Foundation, told Vox that "this Court challenge is the last point at which it seems really like the law could completely go away."

On this, I have a rare disagreement with Levitt: there is no plausible version of a King ruling in which Obamacare vanishes. Unlike the challenge to Obamacare's individual mandate, the King case doesn't contest the Patient Protection and Affordable Care Act itself. It contests a specific IRS regulation that interprets how subsidies flow through federally run exchanges.

As Jonathan Adler, one of the lawyers behind the case, told me, this is "a challenge to the lawfulness of this specific regulation. If the plaintiffs are successful, the court declares this regulation is unlawful."

In the individual mandate case, there was a chance of the Supreme Court overturning Obamacare in its entirety. Here, the Court isn't considering Obamacare in its entirety. The worst it will do is overturn the IRS's regulation, shutting off subsidies in states that haven't built their own insurance exchanges.

It's common for reporters to say that SCOTUS might "gut" or "destroy" Obamacare — a shorthand for the very real, and truly devastating, consequences of cutting off insurance subsidies in 34 states. I've probably used the formulation myself. Those consequences are real, and for the newly insured, scary. But — in another divergence from the individual mandate case — states can choose whether to face them.

A ruling for the plaintiffs in King won't change anything about Obamacare in California, or New York, or Massachusetts, or even Kentucky. And it won't be a long-term problem for the states using a federal exchange out of convenience rather than ideology; they'll just set up their own exchanges, and while that's a pain in the neck, it's by no means an insurmountable obstacle. Indeed, as my colleague Sarah Kliff notes, Pennsylvania, Arkansas, Delaware, and Maine are already working on backup plans.

So King can't destroy Obamacare. What it can do is let Republican elected officials destroy Obamacare in states where they have a majority. That's a very different thing, and it will lead to very different political dynamics.

The states that use federal exchanges are mainly run by Republicans

There are 34 states that have let the federal government run their exchanges. Of these, 26 have Republican governors.

If the subsidies are ripped out of federal exchanges, it will only cripple the law in states that refuse to build their own exchanges. But it will go beyond that, too: resistant red states will be left with a wrecked insurance market — and a hefty tax bill.

This is a key point that's often forgotten in the King v. Burwell discussion: the lawsuit shuts off subsidies, but it doesn't touch the taxes and spending cuts that pay for those subsidies. Republicans in those states will still be paying the taxes and bearing the spending cuts needed to fund Obamacare. They just won't be getting anything back.

Meanwhile, the destruction of subsidies will wreck the individual insurance markets in the recalcitrant states. As Justice Anthony Kennedy said during the oral arguments, ruling for King would basically mean "states are being told either create your own Exchange, or we'll send your insurance market into a death spiral."

Here's how the death spiral would work. Younger people disproportionately benefit from the insurance subsidies because younger people are disproportionately poor. If the subsidies end, they'll flee the exchanges, because they won't be able to afford their insurance premiums. If they flee the exchanges, premiums will rise for everyone, as the remaining enrollees will be older and sicker. As premiums rise, even more enrollees will flee. Eventually, the only people left will be those who are so sick they absolutely can't go without insurance, and premiums will be unaffordable.

In that way, ending the subsidies can badly hurt people who aren't even using subsidies, because it will send average premiums skyrocketing.

It is very odd that Republicans are cheering for this to happen to their states.

Congress isn't getting rid of Obamacare, and neither is the next president

Jeb Bush Announces Candidacy For President

Is Jeb! really going to enter the White House and then rip health insurance from 16 million people? I doubt it.

Photo by Joe Raedle/Getty Images

There's a version of the argument that King v. Burwell destroys Obamacare that has nothing to do with the Supreme Court. In this telling, the Court's ruling makes Obamacare into such an awful mess that it gives Republicans in Congress leverage to repeal it, or it leads to a Republican winning the next presidential election and he or she repeals it.

But that's not going to happen, either. Already, Republicans are taking it as a given that they need to somehow save Obamacare's subsidies.

Senator Susan Collins, a Republican from Maine, told the New York Times she was hoping to see the Supreme Court rule for the plaintiffs because "it would provide an opportunity to transition to a new law, or an improved version of the Affordable Care Act." Notice the absence of the word repeal. And pay close attention to what she said next: "I don’t think it would be fair to cut off people who have been using Obamacare subsidies."

Her colleague, Sen. John Thune, a member of the Republican leadership, was even pithier: "On this issue, we are not playing with the strongest hand," he said.

There are already a slew of Republican proposals to continue the subsidies in one way or another. The plans don't make much sense, many of them create new problems, and I am not confident any of them can pass — but they express how different the politics of Obamacare are in 2015: pure repeal is understood to be a fantasy.

Three post-King futures

There are basically three possible paths for Obamacare if the Court rules against it.

1) Congress simply fixes Obamacare. Congress could easily pass a bill that adds a few words to Obamacare and makes it clear that subsidies can go through federal exchanges. That would solve the entire problem instantly. They could pair that bill with some relatively light changes to the law to help Republicans save face.

This is, from a policy perspective, the best and least disruptive of the options, but I don't think it's very likely. The politics of Obamacare — particularly amidst a GOP presidential primary — make it very hard for House and Senate Republicans to simply fix the problem. Any plan they pass needs to somehow look like it's leading to Obamacare's repeal or replacement, but any plan they pass needs to also make sure that the millions of people getting insurance through Obamacare keep getting that insurance. It's an impossible bind.

2) The next president fixes Obamacare. The prospect of a Republican president might push congressional Republicans to pass a temporary fix for Obamacare — something that stabilizes subsidies for two years but forces a solution in 2017. (Sen. Ron Johnson, a Wisconsin Republican, has a bill along these lines.) But whether it's a Democratic or Republican administration that has to deal with the fallout, whatever Obamacare reform they pass is going to have to cover roughly the same number of people Obamacare is covering now, and so I expect it to be, in effect, pretty similar to Obamacare, though perhaps with looser insurance regulations, more state flexibility, and some change to the individual mandate.

3) America develops a temporary two-tier health-care system. Congress could also collapse into total gridlock: the Republicans propose a fix Democrats can't accept, and vice versa. So nothing happens. America develops a two-tier health-care system where most states implement Obamacare and have low rates of uninsurance. But some red states hold out for years or even decades, paying the tab for Obamacare but receiving none of the benefits. Eventually, the politics calm and all states participate, because the alternative is just too disastrous to sustain for very long.

This is, incidentally, what is already happening with Obamacare's Medicaid expansion. The Supreme Court made that part of the law opt-in in 2012, and, initially, barely any Republican states agreed to participate. But as time has gone on, more and more red states have decided to accept the Medicaid expansion, and now 30 states are part of the program and another three are moving in that direction. It's likely that state exchanges would spread even faster, as the insurance exchanges are currently delivering benefits to people who will be angry if they stop, and the people who get benefits through the insurance exchanges are richer and more politically powerful than the people who get benefits through Medicaid.