When the Supreme Court takes up yet another challenge to the president’s health care law in March, the outcome could have a devastating impact on millions of Americans receiving subsidized health coverage through its exchanges.
Almost immediately after the court announced it would hear King v. Burwell, the now-famous case that centers on whether people enrolled on the federal exchange can receive federal subsidies, legal experts began predicting grave news for Obamacare.
“If I were willing to bet on such things, I would wager that the Court will decide in favor of the plaintiffs, to the effect that people who are currently getting subsidies for health insurance purchased on federal exchanges will lose them,” Bill Gardner, a child psychologist and health services researcher at the Children’s Hospital of Eastern Ontario, writes in the Incidental Economist. Gardner and other health researchers at the Incidental Economist have written extensively about the subsidies case.
In King v. Burwell, the plaintiff challenges language in the law that says enrollees can receive insurance subsidies when they purchase health insurance on an exchange “established by the state.”
They say that since the law does not explicitly mention the federal exchange, the Internal Revenue Service—which is tasked with administering subsidies-- should not legally be able to administer the subsidies to people in any of the 34 states that rely on HealthCare.gov.
If the Court rules in favor of King, 4.6 million people will lose access to the subsidies that make their health coverage affordable. Similarly, the employer mandate would take a hit in those states as well. That’s because, under the law, employers are subject to a penalty if one of their employees receives a subsidy for health coverage through the exchange. But if those subsidies are taken away, that penalty would no longer apply.
That could be a huge issue for the insurance market—since fewer people would be included in the risk pools. But it could also be a huge problem for the federal government that is expecting to collect a huge chunk of money through penalties imposed under the mandates.
The CBO estimates that the government will collect about $46 billion over the next decade. Separately, CBO estimated that losing the employer mandate entirely would cost the federal treasury $130 billion over ten years.
Mark Rust, the managing partner of the Chicago office of Barnes & Thornburg, LLP, agrees with Bagley and expects that the court will likely rule against the administration and strike down the IRS’s ability to give subsidies to people on the federal exchanges.
“The issue has nothing to do with health care. It has nothing to do with health insurance. It is very simple: it has to do with how you read a statute,” Rust said. He added that since the language does not include federal exchanges, it’s likely that the Court will interpret the law literally.
The next question, Rust said, is what happens to Obamacare, since an unfavorable ruling by the Court will severely undermine the entire law—including the individual mandate as well as the employer mandate.
As The New York Times’ Josh Barro points out in The Upshot, people in states that rely on the federal exchange and who can’t afford insurance without subsidies would likely qualify for the hardship exemption and would not be subject to the individual mandate’s penalties.
According to Rust and other legal experts, if the Court sides with King, there are at least two options to stave off a devastating blow to Obamacare.
“Congress could clarify the situation,” Rust said. They could pass an amendment to include the federal exchange and say they actually intended on having the subsidies go to all eligible enrollees.”
Just last week, a handful of Democratic lawmakers who drafted the legislation, penned an op-ed in The Washington Post saying the plaintiff’s interpretation of the law is wrong—and that the ACA’s intentions were always to offer subsidies to all Obamacare enrollees, not just those on state-run exchanges.
“If the Court does strike down federal insurance subsidies in states with federal rather than state-run exchanges that would be quite a body blow. At the very least it would eliminate a central plank of the ACA in over 30 states,” Stuart Butler, a senior fellow at Brookings, wrote in a blog post Friday.
Another option rests on the state level. States relying on the federal exchange right now could pass legislation to establish their own exchange mechanism—and still rely on a partnership with the federal government if need be.
“That would be a lot less painful than one would think,” Rust said. “The statute does not have a lot of great specifics about what states have to do to establish an exchange. States could pass an act saying our exchange is going to be managed by a private organization then ask to use the federal website. It’s very simple.”
The Court won’t hear the case until March. In the meantime, Obamacare advocates say enrollees should continue applying for the subsidies, as they will not be required to pay them back if the Court’s ruling is unfavorable.
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