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Obamacare in the court’s crosshairs again

The Affordable Care Act is in the Supreme Court’s crosshairs yet again.  Last Friday, the Justices surprised Court watchers by agreeing to hear King v. Burwell, a challenge to the subsidies provided as a result of the Affordable Care Act.

Understanding the threat that the current lawsuit poses to the ACA requires understanding what has been called its three “legs.”  The law crafted a careful balance between insurers, consumers and the government.  Insurers may no longer deny applications based on preexisting conditions.  But if that were the end of it, consumers might wait until they were ill to obtain insurance, meaning only the sickest would enter insurance pools.  To avoid such a result, the law requires that most people obtain insurance or pay a penalty — commonly known as the individual mandate.

Acknowledging the prohibitive cost of insurance for some consumers, the law provides government subsidies (issued in the form of tax credits) to ensure that insurance is affordable for most people.   In fact, 83% of those who signed up for insurance on the health exchanges received a subsidy, an estimated 3.5 million people claiming an estimated average subsidy of $2,890 per person. Without such subsidies, health insurance would be unaffordable for many people.  If insurance is unaffordable (defined as a cost in excess of 9.5% of income), the government offers an exemption from the individual mandate.  So only the sickest people would be willing to pay the higher prices, leading to sicker insurance risk pools.  The subsidies, therefore, are a critical component of the entire ACA structure — without the subsidies, the whole edifice may crumble.

The subsidies are exactly where the latest ACA challenge takes aim.  The lawsuits, of which King v. Burwell is only one example, are based on a particular phrase in the portion of the statute setting out the formula to calculate subsidies.  In particular, the formula only applies when someone purchases insurance on an “Exchange established by the State.”  The problem arises out of the fact that only 14 states created their own health exchanges as envisioned — the federal government runs the exchanges in the other 36 states.  But an exchange established by the federal government, the challengers argue, is not an exchange “established by the State.”

The challengers bolster their argument by comparing the law’s provision of expanded Medicaid funds to its provision of subsidies, arguing that both were supposed to encourage states to take action.  The ACA originally conditioned all Medicaid funds on each state’s expansion of Medicaid eligibility — no expansion, no money.  (Of course, this was before the Court held that withholding all Medicaid funds was too coercive and therefore unconstitutional.) Similarly here, the challengers argue, Congress wanted to encourage states to establish their own exchanges by conditioning subsidies on the state establishing an exchange — no state exchange, no subsidy.  In their view, then, the federal government does not have power to grant subsidies to purchasers in those 36 states with an exchange run by the federal government.

The challengers’ case is not open and shut, however.  The government has powerful arguments, both based in the text and purpose of the ACA.  Specifically, the Act specifically provides that if a state fails to create its own exchange, the federal government can create “such Exchange,” thereby implying that the law makes no distinction between state-run and federal-run exchanges.  As for purpose, the government argues that Congress could not have intended a result that leaves millions of people without affordable insurance given that the intent of the law was widespread, if not universal, insurance coverage.  And if Congress really wanted to use the subsidies as a carrot to entice states to run their own exchanges, as the challengers argue, it knew how to explicitly condition such funding on state action, exactly as it did with the Medicaid expansion.  It chose not to do so explicitly here, the government argues, and therefore shouldn’t be assumed.

Courts have come down on both sides of the issue so far.  In fact, the 4th Circuit (which decided King) and the D.C. Circuit (in Halbig v. Burwell) issued opinions on the exact same day in July and came to different conclusions.  The D.C. Circuit has since vacated the three-judge panel’s opinion and decided to hear the case en banc, a process in which all judges on the circuit hear and decide the case together rather than the usual three-judge panel.  Argument was set for December, but on Wednesday the D.C. Circuit cancelled arguments and put the case on hold pending the Supreme Court’s resolution of King.

The Supreme Court’s decision to grant review of King at this particular time was a surprise to many.  The Court granted certiorari in King before the D.C. Circuit had a chance to hear Halbig en banc.  The Supreme Court usually doesn’t review cases unless lower courts have reached competing conclusions (known as a “split”), and since the D.C. Circuit vacated its July opinion, no split currently exists.  The Halbig decision could have, in fact, resolved even the appearance of a split if the D.C. Circuit sitting en banc reached the same conclusion as the 4th Circuit.  But the Court appears particularly eager to hear the case, as it released the order announcing its decision to hear King last Friday, rather than waiting until Monday, the day normally scheduled for orders from its Friday conference.  Whatever the Justices are thinking, the fate of Obama’s signature achievement again rests in their hands (though probably not for the last time).  Oral argument will likely be heard sometime in March, with a decision expected by late June.  In the meantime, Americans that depend on the subsidies for life-saving healthcare will be waiting with bated breath.

Michael Mestitz is the President of the Stanford Law Review. Chelsea Priest is one of the Stanford Law Review’s Managing Editors. Contact them at mmestitz ‘at’ stanford.edu and cayres ‘at’ stanford.edu.

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