King V. Burwell: What it Means for Your Patients

Supreme Court SealOn March 4, Supreme Court justices will hear oral arguments in King v. Burwell in the latest legal challenge to the Affordable Care Act. Let's start with the basics, King vs. Burwell does NOT challenge the constitutionality of the health law. The Supreme Court has already found the Affordable Care Act is constitutional. That was settled in 2012’s NFIB v. Sebelius. What the suit does do is challenge the validity of tax subsidies used by millions of Americans to buy health insurance on healthcare.gov. If the court rules against the Obama administration, those subsidies could be cut off for everyone in the three dozen states using healthcare.gov, the federal exchange website. A decision is expected by the end of June.

At issue in this case is a line in the law stipulating that subsidies are available to those who sign up for coverage “through an exchange established by the state.” In issuing regulations to implement the subsidies in 2012, however, the IRS ruled that subsidies would also be available to those enrolling through the federal health insurance exchange. At the time, the agency noted Congress had never discussed limiting the subsidies to state-run exchanges. It stated that making subsidies available to all “is consistent with the language, purpose and structure” of the law as a whole.

Last summer, the U.S. Court of Appeals for the Fourth Circuit in Richmond ruled that the regulations were a permissible interpretation of the law. While the three-judge panel agreed that the language in the law is “ambiguous,” they relied on so-called “Chevron deference,” a legal principle that takes its name from a 1984 Supreme Court ruling that held that courts must defer to a federal agency’s interpretation as long as that interpretation is not unreasonable.

Those challenging the law, however, insist that Congress did indeed intend to limit the subsidies to state exchanges. “As an inducement to state officials, the Act authorizes tax credits and subsidies for certain households that purchase health insurance through an Exchange, but restricts those entitlements to Exchanges created by states,” wrote Michael Cannon and Jonathan Adler, two of the fiercest critics of the IRS interpretation, in an article in the Health Matrix: Journal of Law-Medicine.

In any case, a ruling in favor of the challengers would affect only the subsidies available in the states using the federal exchange. Those in the 13 states operating their own exchanges would be unaffected (CA, CO, CT, HI, ID, KY, MD, MA, MN, NY, RI, WA, VT). The rest of the health law, including its expansion of Medicaid and requirements for coverage of those with pre-existing conditions, would remain in effect.

This is a huge issue - removing these subsidies could have the practical effect of nullifying the ACA even if the law technically remains in place. A recent Rand Corporation study helps explain just why. Of the 5.4 million people who signed up for health insurance on federal-run exchanges this past year, 87 percent of them received subsidies. Without these subsidies, it isn't clear if these people would maintain their healthcare coverage and offer plans providing coverage the scale and actuarial diversity they require.

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