The US Supreme Court is expected to hand down its decision in King v. Burwell, the second major legal challenge to the Patient Protection and Affordable Care Act (PPACA), some time in June. The case asks the Court to decide whether eligibility for PPACA tax credits that help certain citizens pay health insurance premiums is limited to residents of the 16 states that operate their own insurance exchanges. Currently, the Internal Revenue Service grants credits to residents of those states, in addition to residents of the 34 states that use federally run exchanges. A ruling on which Americans are eligible for tax credits will have important implications for the continued viability of the individual mandate, the most controversial piece of the PPACA.
In exchange for guaranteeing health insurance availability, the PPACA required individuals to maintain health insurance coverage and called for establishment of insurance exchanges, marketplaces providing health care coverage plans for people whose jobs do not provide insurance. Chief Justice John Roberts famously upheld this arrangement in National Federation of International Business v. Sebelius under Congress’ power to levy taxes. Within the individual mandate there is a built-in hardship exception: The mandate does not apply to people for whom the cost of purchasing insurance exceeds 8 percent of their income. If, however, an individual is eligible for a premium assistance tax credit that would drop the cost of insurance below the 8 percent threshold, the obligation to purchase insurance retriggers. Dissatisfaction with this arrangement sits at the heart of the King case. The four petitioners in King would have been exempt from purchasing health insurance on Virginia’s federal exchange if not for the tax credit.
The PPACA allowed two kinds of exchanges. States had the option either to create an individual health insurance exchange or to let the Department of Health and Human Services (HHS) do the job for them. States’ choices on the exchange question largely track America’s ideological divides. The vast majority of state-run exchanges operate in traditionally liberal parts of the country and, with the notable exception of Kentucky, there are no state exchanges in the South. All told, the federal government operates exchanges in 34 states, containing roughly two thirds of the country’s population. If the petitioners prevail in King, states operating a federal exchange will not be obliged to give tax credit eligibility to citizens who are under the 8 percent income threshold, thus eliminating their obligation to buy health insurance.
Who runs the exchange—that is, the state or the federal government—matters because of language embedded in the PPACA provision that sets the value of the tax credit. The provision tells the Treasury Department how to compute the credit amount for people who purchase insurance “through an Exchange established by the State.”1 There is no commensurate provision for federally-operated exchanges. In the petitioners’ view, this means that only residents of states that have established their own exchanges may be eligible for the premium assistance credit. The government contends that federal exchanges are “established by the State” for PPACA purposes.
The arguments in King rehash classic disputes about how judges should interpret statutes. The petitioners take what legal scholars call a textualist approach, famously championed by Justice Antonin Scalia, whereby one divines a law’s meaning by looking only at the words on the page. Their argument is deceptively simple: “Established by a State” means “established by a State,” not “established by HHS.” If Congress had wanted to include federally created exchanges, the petitioners argue, Congress would have done so more explicitly.
For its part, the government asks the justices to consider the statutory text within the broader context of the PPACA and in light of its purpose, an approach to interpretation generally favored by the Court’s liberal bloc. Congress, the government says, intended the PPACA to be a universal program. It sets nationwide rules forbidding discrimination on the basis of preexisting conditions and setting standards for coverage eligibility. Tax credits, the government contends, are another piece of that national framework.
Regarding statutory text, the government argues that federal exchanges act on behalf of the states in which they operate, and thus the Court should consider them “established” by that state. This is a more technical point than it seems at first glance. The tax credit provision refers to exchanges established under the section of the PPACA that commands states to create exchanges.2 In the event that a state does not comply, a different section directs HHS to create the exchange that the first section defined.3 What kind of exchange did the first section define? A state-established one. Thus, the government says, when HHS creates a federal exchange, it creates a state-established exchange for PPACA purposes.
The direction that the Court chooses in King v. Burwell has powerful implications for the future of the individual mandate. If the justices side with the government, the status quo remains. If, however, tax credit eligibility is conditional on the presence of a state exchange, health care exchanges in states with federally run exchanges may collapse.
Elimination of the tax credit would make it difficult, if not impossible, for millions of Americans to stay insured. Estimates of the number of people who stand to lose tax credit eligibility vary significantly, from 7.5 million, per The New York Times,4 to 13.4 million, as reported by Kaiser Health News.5 The greatest damage is projected to be in Florida, where 1.5 to 2.5 million people rely on premium assistance credits to pay for insurance.6
Restricting credit eligibility could also create crises in insurance markets that touch those who do not require premium assistance, creating so-called death spirals of increasing prices and decreasing insurance enrollment. Many individuals who lose eligibility for premium assistance credits will also lose their obligation to buy insurance. At the same time, the PPACA still guarantees access to insurance. Consequently, many people will buy insurance only when they are sick. With fewer healthy people paying for insurance without actually using it, each enrollee becomes more expensive to insure, leading to increases in the price of insurance. Higher prices mean more people going without insurance when they are healthy which, in turn, means even higher prices.
With death spirals hanging over them like the Sword of Damocles, states may feel compelled to establish their own exchanges to restore their citizens’ credit eligibility or, in other words, cooperate with the PPACA. This eventuality was of particular concern to the justices during oral arguments. The 10th Amendment prohibits the federal government from using draconian alternatives to coerce the states into implementing federal programs. If the Court believes siding with the petitioners would be exposing states to unconstitutional coercion, a decision in their favor could expose the entire exchange system to constitutional doubt. On the other hand, the threat of a constitutional controversy may convince Justice Anthony Kennedy or Chief Justice Roberts of the government’s position, on the principle that judges should avoid interpretations that make statutes unconstitutional unless they absolutely must.
Another response to the threat of death spirals would be for Congress to step in and fix the law, doing something such as amending the tax code to explicitly make residents of all states eligible for premium-assistance credits, regardless of who runs the local exchange. Tellingly, when Justice Scalia asked the solicitor general during oral argument if he really thought Congress might play the fiddle while the health care market burned, the solicitor general responded, “This Congress?” It seems likely that the petitioners agree with the sentiment that Congress will not adjust the tax code to settle the question of tax credit eligibility. If the petitioners believed Congress was likely to step in to formally extend the tax credit to all federally run exchange states, their challenge would be in vain.
Like so many decisions, King v. Burwell is projected to be a narrow victory, regardless of which side prevails. The votes of seven of the nine justices are all but set in stone based on their individual records and their comments during oral argument. It would be a major upset if the four liberal justices—Stephen Breyer, Ruth Bader Ginsberg, Elena Kagan, and Sonia Sotomayor—did not take the government’s side. Likewise, Justices Samuel Alito, Clarence Thomas, and Scalia sit squarely in the petitioner’s camp. As is often the case, the moderate-to-conservative justices are the wild cards: Justice Kennedy because he has expressed discomfort with both the government’s statutory reading and the states’ rights consequences of the petitioners’ position; Chief Justice Roberts because he has said virtually nothing. Chief Justice Roberts sided with the Court’s liberal bloc when the PPACA first came under challenge; Justice Kennedy voted to strike it down. The government needs only one of them here. n
Section Editor: George A. Williams, MD. Chris W. Bonneau, PhD, is associate professor of political science, University of Pittsburgh: email@example.com. Sean Craig, JD, is a political science PhD candidate, University of Pittsburgh: firstname.lastname@example.org.
1. The language appears several times in section 36(b) of the Internal Revenue Code (U.S. Code Title 26).
2. 42. U.S. Code section 18031, codifying section 1311 of the PPACA.
3. 42. U.S. Code section 18041, codifying section 1321 of the PPACA.
4. The New York Times Editorial Board. What ending health subsidies means. The New York Times. March 7, 2015. nytimes.com/2015/03/08/opinion/sunday/what-ending-health-subsidies-means.html.
5. Rovner J. If high court strikes federal exchange subsides, health law could unravel. Kaiser Health News. December 2, 2014. http://kaiserhealthnews.org/news/if-high-court-strikes-federal-exchange-subsidies-health-law-could-unravel.
6. Map: How Many Americans Could Lose Subsidies If the Supreme Court Rules for the Plaintiffs in King vs. Burwell? The Henry J. Kaiser Family Foundation. http://bit.ly/1PYHylp.