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Justices to weigh subsidies for health insurance: In Plain English

Nearly three years ago, the Supreme Court decided a huge challenge to President Barack Obama’s signature legislature achievement, the Affordable Care Act. The question was whether the Constitution allowed Congress to require everyone to buy health insurance or pay a penalty. In a dramatic opinion on the last day of that Term, Chief Justice John Roberts joined the Court’s four more liberal Justices in ruling that it does, so the law survived.

Obamacare is back at the Court again this year. This time, the challenge is to how to interpret the Act, rather than whether it violates the Constitution. Although there’s no grand constitutional showdown, the stakes are nearly as high as they were three years ago, because a ruling in favor of the challengers could gut how the Act functions. Let’s talk about King v. Burwell in Plain English.

We’ll start with a little bit of background. There are three key parts to the ACA. The first is the “non-discrimination” rule: insurers have to provide health insurance to everyone, without charging higher rates or denying coverage to people who are sick.   The second is the individual mandate, which the Court upheld three years ago: everyone has to buy insurance. This ensures that there will be healthy people in the insurance pool to balance out the costs of the sick people; otherwise, healthy people would save money by waiting until they got sick to buy insurance, knowing that insurance companies have to sell it to them then. Third, because everyone has to buy insurance, there are tax subsidies to make sure that lower- and middle-income Americans can afford to comply with the individual mandate by buying insurance.

Many people in this country get their health insurance through their jobs. But that’s not an option for everyone – for example, people who are self-employed or work for businesses that don’t have to provide them with insurance. To make it easier for these people to get health insurance, the ACA encourages the states to establish “exchanges “ – marketplaces where individuals and small businesses can buy health insurance. (The president has described the exchanges as for health insurance.)

But Congress does not have the power to make the states set up exchanges, so the ACA also instructs the federal government to step in and set one up if a state declines to do so – as thirty-four states eventually did. The exchanges are where the subsidies come in: the ACA provides that you only get the subsidies if you buy your health insurance through an exchange. The federal government reads the ACA to allow subsidies whenever someone buys health insurance on any exchange, whether it’s set up by the federal government or a state.

The challengers in King disagree. They point to the fact that in announcing the formula used to calculate the amount of the subsidies, the Act refers to “an Exchange established by the State.” So, they contend, the subsidies are not available to people who purchase their health insurance through an exchange operated by the federal government.

In 2014, over five million people bought health insurance on exchanges created by the federal government. One of those people was David King, a sixty-four-year-old Vietnam veteran who lives in Virginia and works as a limo driver. Based on his annual income of $39,000, King can purchase a health insurance plan with a monthly premium of $648 for just $275; the other $373 is covered by a subsidy. But King doesn’t want that subsidy. In fact, he doesn’t want to have to buy health insurance at all. And without the subsidy, he wouldn’t have to, because the health insurance would cost him enough that he would qualify for an exemption from the individual mandate.

King and three other Virginia residents filed a lawsuit challenging the government’s interpretation of the ACA as allowing subsidies for anyone who purchases health insurance on an exchange. The lower federal courts rejected their argument, but in November the Justices agreed to weigh in.

In their briefs at the Supreme Court, the challengers say that their argument is so simple that anyone who speaks English can understand it. The text of the ACA directs states to create an exchange. If they don’t, the federal government steps in and creates one itself. But Congress made clear that subsidies are only available for coverage that is “enrolled in through an Exchange established by the State” – and the federal government is not a state. If Congress had wanted subsidies to be available no matter who sets up the exchange, it could have said so, and it certainly wouldn’t have specifically indicated that subsidies would be available only for coverage obtained through exchanges “established by the State.” And reading the ACA to make subsidies available only for insurance purchased through state exchanges, they add, is consistent with what Congress intended because it gives states a strong incentive to create the exchanges in the first place.

Defending the availability of subsidies for all, the federal government counters that the challengers’ focus on the four words “established by the State” is too narrow. If you look at all of the ACA, the government argues, it is clear that subsidies are available whenever you buy health insurance on an exchange, whether it’s an exchange established by the state or instead by the federal government. One provision, for example, indicates that the tax credits should go to an “applicable taxpayer” – a status that hinges on income levels, rather than the exchange on which someone buys insurance. And, the government says, other parts of the ACA make clear that even the phrase “established by the State” actually includes the federal government.   For instance, to shop for insurance on an exchange, you have to live “in the State that established the Exchange” – which would mean that insurance would not be available to anyone who lived in a state that declined to set up an exchange, even when the federal government set one up.

Reading the ACA to allow subsidies regardless of who sets up the exchange is also more consistent with the design and purpose of the ACA, the government emphasizes, because otherwise the whole system would fall apart. If you take away the subsidies, the government argues, but leave the individual mandate and the non-discrimination rule in place, the health-care system will go into a “death spiral”: insurers would still have to provide insurance to everyone, but in the states where the subsidies aren’t available only sick people will sign up – healthy people who would have otherwise gotten the subsidies will either be exempt from the mandate or pay the penalty. And if the group of people who are buying insurance is skewed toward sick people, everyone’s premiums will go up, and then enrollment will fall because the premiums went up.

As you might expect for such a high-profile, high-stakes case, lots of outside groups have also weighed in, seeking to sway the Court to their points of view. The states stake out positions on both sides of the debate. Some, like Missouri, remind the Court that its citizens specifically voted not to set up a state exchange and assure the Court that there was a “public awareness” that subsidies might not be available to Missouri residents as a result of that vote. But other states, such as Virginia, tell a different story. They explain that, although they opted not to create a state exchange, they believed that there would be no harm to their citizens or insurance markets if the federal government set up the exchange instead.

Some groups supporting the government also warn about potentially dire consequences if the subsidies are not available for people who buy their insurance on exchanges established by the federal government. They caution that such a result could reverse the progress that the U.S. has made in battling HIV and could also endanger the country’s ability to respond to other public health threats like Ebola, the measles, or bioterrorism; the idea is that if people have health insurance, they will generally be healthier and more resistant to illness if there is a public health crisis, and if there is a crisis the people who do get sick will seek treatment faster if they have health insurance.

In the last few weeks, there have been new questions about whether the four plaintiffs in the case actually have a legal right to challenge the subsidies at all. News stories have revealed, for example, that as a Vietnam vet David King could be eligible for free medical care from the government ; if so, he wouldn’t be able to complain that he doesn’t want to have to pay for health insurance. All that really matters is whether at least one of the four plaintiffs can bring the lawsuit, but this issue could grab the attention of some Justices, especially as a way to stave off a ruling against the government on the merits  of the dispute. We’ll know much more after the oral argument on March 4.

Recommended Citation: Amy Howe, Justices to weigh subsidies for health insurance: In Plain English, SCOTUSblog (Feb. 23, 2015, 1:07 PM),