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King v. Burwell: How Potent is the Latest Threat to Obamacare?

By   /  May 14, 2015  /  No Comments

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On March 4th, 2015, the U.S. Supreme Court heard arguments for King v. Burwell, the latest case that threatens to derail the Affordable Care Act of 2010. The act was intended to reduce the number of uninsured people in two main ways, according to Robert Pear of the New York Times: by “expanding Medicaid and by providing tax credits to subsidize private insurance purchased through the public exchanges.” In the 2012 challenge to the ACA, the court examined the Medicaid approach. Now, it’s the subsidies’ turn.

The plaintiff’s argument rests on a single four-word phrase of the act, as described in a recent New York Times editorial: “established by the State.” Bloomberg ’s Arit John describes the scenario as follows:

“The Affordable Care Act amended the IRS tax code to provide subsidies for plans ‘which were enrolled in through an Exchange established by the State under 1311.’ Section 1311 lays out guidelines for states to create their own exchanges, and doesn’t mention a federal exchange. The Obama administration argues that this is a drafting issue and that it was never Congress’s intent to deprive states of subsidies. A later section gives the Health and Human Services secretary the power to ‘establish and operate such Exchange within the State.’ The conservative groups…suing the administration… argue that Congress wanted to use the subsidies to reward states that built their own exchanges.”

According to Abbe Gluck, of Yale Law School, when read in isolation, “established by the State” implies that critical insurance subsidies amounting to $25 billion for 8 million Americans (out of the 11 million currently signed up for Obamacare), who would not have access to health care without them, “are not available when states refuse to operate their own insurance exchanges and instead let the federal government do it for them.” The challengers argue that these four words operate to “punish” states that, in an act of political defiance, “choose not to implement the statute themselves,” continues Gluck. If the court rules in favor of the challengers, the insurance markets in these 34 states would collapse. And it is not unrealistic to assume that the ruling for this case may have direct implications for other Americans enrolled in Obamacare.

King v. Burwell is hardly unique in that it addresses one of the most persistent struggles in American democracy: the balance of power between the states and the federal government. According to Gluck, the ACA itself is built on “a principle of federalism: out of respect to the states and deference to their traditional leadership in healthcare, the ACA gives states the right to refuse implementing the statute themselves; if they do, the federal government has to step in and do it for them.” And conservative judges have consistently upheld respect for state sovereignty — for a less heavily politicized case, this would have been an easy decision to make. Lawrence Gostin, JD, says that the Supreme Court should never have agreed to hear the case in the first place “because there was no split in the lower courts” about the IRS decision to permit “subsides (‘premium tax credits’) for all exchanges, whether state or federally operated.”

King v. Burwell differs from previous challenges in that it is not a case about the constitutionality of the ACA — this was decided in 2012. However, it is worth noting that comments made by several justices in the extended hearing on March 4 revisit the very same principles debated in 2012. Justice Anthony Kennedy raised eyebrows when he suggested that if the federal government was using the importance of subsidies to force states to operate their own exchanges, it would be practicing an “‘unconstitutional form of federal coercion,’” as Forbes’ Grace-Marie Turner explains. Is it even constitutional for Obamacare to induce or influence states to set up exchanges? Kennedy expressed:

“Let me say that from the dynamics of Federalism, it does seem to me that there is something very powerful to the point that…the states are being told either create your own exchange, or we’ll send your insurance market into a death spiral. We’ll have people pay mandated taxes which [they] will not get any credit on — on the subsidies. The cost of insurance will be sky-high, but this is not coercion. It seems to me that under your argument, perhaps you will prevail in the plain words of the statute, [but] there’s a serious constitutional problem if we adopt your argument.”

It is these dynamics of Federalism that are being called into question. The consequences, some insist, will not be severe. After all, the United States has had health insurance markets in place without the help of federal exchanges for over a century now. Even after the ACA was passed in 2010, federal exchanges were not set up overnight — the ACA took nearly four years to be implemented.

The majority of commentators agree, however, that the impact would be more drastic. If the court rules for the challengers, the government will have to, according to Michael Shear of the New York Times, “stop sending tax credits to insurance companies on behalf of the millions signed up through Healthcare.gov who were promised subsidies to offset the price of premiums.” The prices of these premiums could triple within weeks, causing these people to lose their healthcare. The ones that choose to keep their healthcare would be the sickest people (the people who need their insurance most) — driving up costs even more for the rest of the population. The result would be a “death spiral,” the most dramatic example of adverse selection.

What is the Obama administration doing to prepare for a potentially crushing defeat of its hallmark legislation? Nothing, apparently. Shear writes that the President, in an interview with Reuters, said “If they rule against us, we’ll have to take a look at what our options are. But I’m not going to anticipate that.” This approach echoes the administration’s strategy in 2012, when it refused to “acknowledge any planning for the effect of acrossthe-board budget cuts… insisting that the draconian cuts would never come to pass (they did).” Some experts believe, however, that the White House is being “savvy” in making clear that despite their confidence, “the situation is dire,” since the justices regularly consider how the executive or legislative branches will react to their rulings. King v. Burwell is, then, an exercise in the balance of power between the three branches of government, as well as one between the federal and state governments.

After the ruling, the Obama administration could attempt to work with Congress to clarify the wording of the ACA in order to avoid future conflicts and ensure that the subsidies would be available everywhere. However, Republicans in Congress are unlikely to revisit the legislation, much less support any further changes to it. In addition, this Congress (one of the most gridlocked in US history) has little chance of coming to an agreement on a better alternative.

With the court scheduled to go into private discussions soon, only one thing is clear: the very existence of King v. Burwell proves that the ACA is still standing on very shaky ground. How many assaults on its existence can a piece of legislation survive? If for nothing else, the ACA will be remembered for providing an answer to that question. That there exist commentators who question the court’s decision to even agree to hear the case shows how divided the country is. The potential impact of the ruling on the 2016 presidential election will generate even more heated discussion.

The Supreme Court will likely issue a ruling on King v. Burwell in June or July of this year, at the end of its current session.

Sarah Kim

Jonathan Edwards ’17

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