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Symposium: The Court will hear King. That’s bad news for the ACA. (Updated: 1:25 p.m. Nov. 10)

Nicholas Bagley is an Assistant Professor at Michigan Law.

In a significant setback for the Obama administration, the Supreme Court just agreed to review King v. Burwell, the Fourth Circuit’s decision upholding an IRS rule extending tax credits to federally established exchanges. The government had asked the Court to take a pass because there’s no split in the circuit courts over whether the IRS rule is valid. At least four justices—it only takes four to grant certiorari—voted to take the case anyhow.

As I see it, what’s troubling here is not that the Court took King in the absence of a split. Its rules permit it to hear cases involving “important question[s] of federal law that ha[ve] not been, but should be, settled by this Court.” It’s not remotely a stretch to say that King presents one such important question. On this, I part ways with those who claim that granting the case marks a clear departure from the Court’s usual practices.

No, what’s troubling is that four justices apparently think—or at least are inclined to think—that King was wrongly decided. As I’ve said before, there’s no other reason to take King. The challengers urged the Court to intervene now in order to resolve “uncertainty” about the availability of federal tax credits. In the absence of a split, however, the only source of uncertainty is how the Supreme Court might eventually rule. After all, if it was clear that the Court would affirm in King, there would have been no need to intervene now. The Court could have stood pat, confident that it could correct any errant decisions that might someday arise.

There’s uncertainty only if you think the Supreme Court might invalidate the IRS rule. That’s why the justices’ votes on whether to grant the case are decent proxies for how they’ll decide the case. The justices who agree with King wouldn’t vote to grant. They would instead want to signal to their colleagues that, in their view, the IRS rule ought to be upheld. The justices who disagree with King would want to signal the opposite.

And there are at least four such justices. If those four adhere to their views—and their views are tentative at this stage, but by no means ill-informed—the challengers just need one more vote to win. In all likelihood, that means that either Chief Justice Roberts or Justice Kennedy will again hold the key vote.

None of this bodes well for the government. That’s not to say the government can’t win. It might. As I’ve said many times, the statutory arguments cut in its favor. But the Court’s decision to grant King substantially increases the odds that the government will lose this case. The states that refused to set up their own exchange need to start thinking—now—about what to do if the Court releases a decision in June 2015 withdrawing tax credits from their citizens.

One further point. In their petition, the challengers suggest that they’re trying to protect people from the individual mandate. They point out that ACA exempts families from the mandate penalty if, after taking tax credits into account, they would have to spend more than eight percent of their income to get health coverage. Eliminating tax credits in states with federal exchanges would mean that many more people would exceed that eight-percent figure.

For the challengers, that’s a good thing. In Michael Cannon’s words, “a victory for the . . . plaintiffs would free more than 8.3 million residents” from the mandate. The pending Supreme Court petition makes the same point:

[B]y purporting to make a credit “allowable” in states served by HealthCare.Gov, the IRS Rule reduces the number of people in those states exempt from the individual mandate penalty. Now ineligible for exemptions, those individuals are no longer free to forgo coverage . . . .

The argument seems tailor-made for Justice Kennedy. Indeed, the cert. grant suggests it may have proved persuasive.

But it’s an odd argument. To see why, think about who would be exempt from the mandate penalty if the Court invalidates the IRS rule. It wouldn’t be everyone. The average cost of an entry-level plan is $3,468 per year. That’s more than eight percent of income only for those families making less than $43,350 per year, which for a family of four is about 180% of the poverty line.

So in most states, for families making between about two and four times the poverty line, a victory for the challengers wouldn’t eliminate the mandate. It would just wipe out tax credits and effectively increase the price of insurance. That’s not exactly a blow for liberty.

What about those lucky people – those who make too much to go on Medicaid but still less than twice the poverty level – who would be exempt from the mandate penalty? To make it concrete, imagine for a minute that you don’t have coverage through your job and you’re trying to support your family on an annual income of $35,000 (about 150% of poverty). You want insurance, especially for your kids, but even a bronze plan costs almost $3,500 per year, or ten percent of your total earnings. You just can’t afford it.

With a tax credit, however, coverage would be in reach. Your credit would be worth about $2,740, so you’d only have to pay $760 for a bronze plan – about two percent of your income, or $63 a month. (These figures aren’t outliers. CBO estimates that the average tax credit in 2014 will be $2,400.)

Would you really have more freedom if you lost the tax credit and, because you could no longer afford insurance, you were exempt from the mandate? No doubt, some people would say yes. They bristle at the mandate and don’t value insurance very much – even cut-rate insurance. They’re also pretty cavalier about asking the rest of us to pick up the tab if they fall ill or have an accident.

Many near-poor families, however, would find it liberating to get cheap coverage, even if they were required to do so. Health insurance offers a kind of freedom, too. It’s the freedom to quit that stultifying desk job that you stay in only because of the health benefits. It’s the freedom not to have to choose between making rent and buying your kid’s asthma medication. And it’s the freedom not to fear that a car accident or a cancer diagnosis might bankrupt you.

Yes, if the King challengers prevail, millions of people would be exempt from the mandate penalty. But that just means they would be free to decline coverage that, without tax credits, they could not have afforded anyhow. What kind of freedom is that?


(Cross-posted on The Incidental Economist.)

Recommended Citation: Nicholas Bagley, Symposium: The Court will hear King. That’s bad news for the ACA. (Updated: 1:25 p.m. Nov. 10), SCOTUSblog (Nov. 7, 2014, 12:48 PM),