This is the first installment of a 2-part commentary by Jones & Bartlett Learning author and health policy expert, Joel Teitelbaum, on the most recent challenge to the Affordable Care Act (ACA), now a case before the U.S. Supreme Court. The second installment will discuss the Supreme Court’s decision in the case (expected by the end of June, when the Court concludes its current term).
On March 4th, 2015, the United States Supreme Court held oral arguments in yet another case – the third since 2012 – concerning the legality, meaning, and/or operation of the Affordable Care Act (ACA). In King v. Burwell, the court is considering whether “the Internal Revenue Service [IRS] may permissibly promulgate regulations to extend tax-credit subsidies to coverage purchased through exchanges established by the federal government under Section 1321 of the Patient Protection and Affordable Care Act.” While seemingly dry and technical on its face, in fact the answer to this question will determine whether millions of low- and moderate-income Americans will continue to have access to affordable health insurance coverage. In this blog post, I describe the issue at the heart of King v. Burwell; in a later blog post, I will discuss the Supreme Court’s decision in the case (expected by the end of June, when the Court concludes its current term).
The background: The ACA directs states to create an insurance exchange – effectively, an online marketplace where individuals can compare and shop for health insurance policies for themselves and their families. Should a state decide not to set up its own exchange – and a whopping 34 states ultimately took that path – the ACA indicated that the federal government would fill the void by creating a “federally facilitated marketplace,” or FFM, in the state, thus allowing residents of a “non-exchange state” the opportunity to purchase affordable health insurance. Furthermore, the ACA offers federal tax credits (i.e., a subsidy) to individuals who need financial assistance in order to purchase products through an exchange. In establishing the formula used to determine the awarding of the tax credits, Congress wrote in the ACA that the credits apply to insurance purchased through an exchange “established by the State.” Put another way, the ACA’s language about the flow of tax credits to those who purchase insurance through an exchange does not specifically mention marketplaces that were established by the federal government to assist those individuals in “non-exchange states.”
After the ACA was passed and federal agencies began the task of passing thousands of rules implementing the law, the IRS issued a regulation indicating that tax credits were available for purchases under both state-formed and federally-facilitated exchanges. Subsequently, about 90 percent of the approximately five million people who purchased insurance through a federally-facilitated exchange received the ACA’s tax subsidy.
The plaintiffs who initiated King v. Burwell contend that the IRS regulation is unlawful. They argue that the statutory language “established by the State” means that ACA tax credits are allowed only in the event that the purchase of insurance occurred through an exchange established by a state. In contrast, those legislators who wrote the statute, and other supporters of the ACA, contend that when read as a whole, the ACA makes it clear that both state- and federally-run exchanges are subject to the law’s subsidy language.
Taken most simply – and least politically – King v. Burwell presents a straightforward question of statutory interpretation: How should the four words at issue be reconciled with the rest of the statute? This is hardly a novel question of law, as courts are routinely asked to interpret statutory ambiguities; and under existing Supreme Court precedent, courts are required to uphold regulations that reasonably resolve those ambiguities.
Two federal appellate courts – those courts that reside just below the U.S. Supreme Court – have already ruled on just what the ACA’s tax credit language means. As part of the King v. Burwell litigation, the Fourth Circuit Court of Appeals ruled, unanimously, that the subsidy language applies to state-based and federally-facilitated exchanges alike. In contrast, the D.C. Circuit Court of Appeals determined, in a 2-1 split decision, that ACA tax credits are limited to purchases made through federally-facilitated exchanges.
The stakes in King v. Burwell are incredibly high: If the Supreme Court sides with those challenging the IRS regulation and Congress does not subsequently amend the ACA to make clear that the subsidies apply to all exchanges (which is likely, given Republican disapproval of the ACA and the political logjam that exemplifies Congress), estimates put the number of adults and children who would become uninsured as a result at between 8 million and 10 million. Furthermore, insurance markets across the country would be likely to falter badly as a result of the destabilization that would occur from removing these millions of low-income but relatively healthy individuals from insurance pools.
Reading the tea leaves after Supreme Court oral arguments is risky, a fact about which we need look no further than the Court’s first ACA decision (in NFIB v. Sebelius), which defied nearly all expectations. That said, those hoping that a majority of the Court will employ a common sense, contextual reading of the ACA’s subsidy language – as opposed to one that is literal and purely textual – came away from the arguments with reason to hope. Of particular import, Justice Anthony Kennedy – oftentimes a key swing vote in the Court’s social policy jurisprudence – seemed concerned that by following the logic of the challengers, the ACA would be read to either coerce states into creating an Exchange or accept the fact that in not setting up an Exchange, they would face near-certain destruction of their insurance markets.
Joel Teitelbaum, JD, LLM is an Associate Professor and the Vice Chair of Academic Affairs in the Department of Health Policy at the George Washington University School of Public Health and Health Services. He also serves as Managing Director of the School’s Hirsh Health Law and Policy Program. Along with co-author Sara Wilensky, Professor Teitelbaum is the author of Essentials of Health Policy and Law, Second Edition from Jones & Bartlett Learning. (Qualified instructors are invited to request review copies here.)