Four Little Words – Could decide future of ACA

2015-ACA updateOn Wednesday, March 4, the Supreme Court of the United States (SCOTUS) heard oral arguments in King v. Burwell, the legal challenge to the statutory legitimacy of subsidies in federally facilitated marketplace (FFM) states. Oral arguments are the precursor to the final SCOTUS decision on a case, and the public’s only glimpse into what the justices might be thinking about a case prior to their ruling. Decisions normally take several months following oral arguments, and SCOTUS traditionally reserves the release of its most significant decisions until the very end of its term. That means while King v. Burwell is the talk of the town this week, we will not know what the outcome of the case is until likely the end of June.

Unlike the 2012 Supreme Court challenge of the health reform law, NFIB v. Sebelius, which was a challenge as to whether the law, in whole or in part, violated the constitution, the King v. Burwell case is not challenging whether or not the law is constitutional, but instead whether the Administration has overstepped its legal authority. That means that if SCOTUS sides with the plaintiffs, it is highly unlikely that the law itself would be overturned or found unconstitutional. The plaintiffs argue that the statute explicitly excludes subsidies in FFM states, by focusing on four little words in the law that read subsidies are only to be made available in an exchange “established by the state.” They assert that the IRS overstepped its authority when they decided to allow subsides to be available in all states, regardless of the type of exchange. These four words are the crux of whether one of the most central elements of the health reform law could also be its demise.

If the court sides with the plaintiffs, then consumers in FFM and partnership states would be prohibited from accessing subsidies, as the federal government oversees all non-state-based exchanges. This means that more than 7 million consumers in the 37 FFM and partnership states could lose their subsidies. With more than 80% of exchange consumers, earning 400% of poverty or lessSupreme court of the United States, receiving some subsidy for their marketplace coverage, millions could find themselves enrolled in coverage that they can no longer afford without the subsidies. They would then be exempted from the individual mandate as they wouldn’t have access to affordable coverage, and could potentially decide to drop coverage. As the law’s guaranteed-issue and modified community rating requirements are still in place, consumers could theoretically decide to wait until they need coverage to purchase, setting insurance markets into chaos and triggering the “death spiral” of insurance markets everywhere.

In addition to the individual mandate being significantly undermined, the integrity of the employer mandate could also be at risk. As the employer mandate (b) penalty is only triggered when an individual received subsidized coverage through the marketplace, employers with employees who live in FFM states would not have the incentive/enforcement mechanism to keep them offering affordable coverage. This could undermine the entire employer-based healthcare system. Another possibility would be that consumers in these states, suddenly without subsidized marketplace coverage, could run to employers demanding coverage despite not having a qualifying life event.

This King challenge is one of four that have been making their way through the courts over the past year. It is joined by Halbig v. Burwell, Pruitt v. Burwell, and Indiana v. IRS in challenging the validity of the subsidies. TheKing case was most recently heard by the Fourth Circuit Court of Appeals in Richmond, Virginia, in July, when the court ruled 3-0 that subsidies should be available to consumers in all states—the decision which the plaintiffs appealed to the Supreme Court. On the same day that the Virginia court ruled, across the Potomac River in Washington, the D.C. Circuit ruled 2-1 that subsides should only be available in state-based marketplaces. The Administration appealed this ruling, but decided against another hearing pending the result of the Supreme Court. The Pruitt case also resulted in a win for the plaintiffs, while the Indiana case is on hold pending the Supreme Court.

The court is roughly split in half between liberal-leaning and conservative-leaning justices, with Justice Anthony Kennedy playing a key swing vote, although he traditionally sides with the court’s conservative wing. Reading the “tea leaves” of the court is a favorite pastime of many in Washington, D.C., although speculation about what the court might be thinking is anybody’s guess. During oral arguments, Justice Ruth Bader Ginsberg (of the liberal wing) opened the questioning on the standing of the four plaintiffs—whether they had been directly impacted by the law and thus could legally challenge it. While three of the four plaintiffs are questionable (Medicare-age, poverty/hardship exemption and Veteran-care eligible), the fourth plaintiff should have standing, although that is still questionable because it would depend on his income for 2014, which is not yet known. The plaintiffs claim standing, and thus direct impact by the law, because without the subsidies they wouldn’t have access to affordable coverage and thus would be exempted from the individual mandate. If subsidies aren’t available in FFM states, which they argue are not under a strict reading of the statute, then they shouldn’t have to purchase coverage.

Justice Elena Kagan (also of the liberal wing) dominated the early part of oral arguments questioning the incentive structure of the subsidies for states to take part. Interestingly, Justice Anthony Kennedy seemed to follow behind Kagan’s logic, questioning whether the subsidies would be coercive for states to take part and would thus threaten states rights. Again, reading tea leaves into this is not easy—after all, in 2012 court prognosticators spent countless hours reading into Kennedy’s “broccoli questions” and he wound up taking the lead in writing the dissent in the case and read it from the bench. Scalia backed up the plaintiffs in his questioning about the coercion issue. Justice Clarence Thomas is widely known for keeping his silence during oral arguments, so his lack of questions was unremarkable. More interestingly, Chief Justice John Roberts was also remarkably quiet during arguments, giving us little indication into how he is leaning. Roberts was the crucial fifth vote to side with the Administration in the 2012 challenge, arguing that the law’s mandate was constitutional under Congress’s taxing powers, after initially siding with the plaintiffs that the entire law was unconstitutional. The entire oral argument session took just over an hour; for those interested, the transcript of the oral arguments is available here and you can listen to the arguments here.

So what happens now? The court’s nine justices will meet today, March 7, in a closed session to discuss the case and make preliminary votes on the outcome of the case. They can still switch their opinions as they begin to write their opinions and dissents (as Chief Justice Roberts famously did in 2012), but today’s meeting will help them decide where they are on the case. This decision will remain a carefully guarded secret until the decision is formally announced, likely in late June. After today’s vote, the court will assign justices to write the court’s opinions; which include the majority opinion, the dissenting opinion, and possibly a concurring opinion for a justice that may agree with the ultimate outcome, but for a different reason than what is argued in the majority opinion.

Again, remember the court is not expected to release their decision until the end of their term in June. As a general rule, the court usually saves their most controversial cases and decisions for the last days of the term, when they can skip town—or even the country—to get away from the public attention. Regardless of how they rule, we will be closely following the issue and will be at the ready with a response.

If the court sides with the plaintiffs and strikes down the subsidies in FFM states, it could either make the decision effective immediately or it could delay until their decision is certified—roughly 28 days later. The court could also decide, that given the tremendous consequences of the decision, to allow subsidies to continue for the remainder of the tax year. Another option, although very unlikely, would be for the court to decide not to act yet, arguing that the plaintiffs do not have standing and to wait until a citizen is unquestionably impacted by the law’s subsidies. Again, speculation about the court’s decision is anybody’s guess. The Administration has repeatedly said that they have full confidence that the court will rule in their favor and thus have no backup plan—a claim that many find dubious. The only word that we have heard so far from Administration officials is that carriers would have an “opt-out” clause in their contracts if the subsidies go away, although this doesn’t change HIPAA rules for carriers to exit markets.

Because this is a statutory challenge, it could also be an easy statutory fix. Relatively easy, that is, as the government’s Attorney Donald Verrilli, noted wryly during oral arguments that it might not be easy in thisCongress. Congress would just need to insert a few words and voilà—subsidies are available in every exchange! Leaders in Congress are currently looking into possible solutions on how to make this work, either temporarily or permanently. Senators Orrin Hatch (R-UT), Bill Cassidy (R-LA), John Barrasso (R-WY) and others are pitching a possible 18-month extension for subsidies, terminating right around election time in 2016 and waivers for the states to make other needed market changes. Senator Ben Sasse (R-NE) has suggested the idea of turning subsidies into a COBRA-like patch, with the federal contribution gradually fading away by 5% each month until it completely ceases. The House, with Representative Paul Ryan and others, is also pitching plans to deal with the millions of consumers who could be impacted. The details of these plans remain murky, but we will pass them along as soon as we have them.

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