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In a 6–3 decision, the U.S. Supreme Court upheld providing subsidies to individuals in the 34 states with federal exchanges (shown in brown).
Courtesy of Thinkstock

AAOS Now

Published 8/1/2015
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Elizabeth Fassbender

Supreme Court Upholds ACA Subsidies

6-3 decision in King versus Burwell saves “Obamacare”

The Supreme Court of the United States (SCOTUS) has once again ruled in favor of the Affordable Care Act (ACA), thus preserving the health care reform act and shifting attention to legislative revisions. In a 6-3 decision, the Supreme Court upheld the ACA’s insurance subsidies, ruling that the context and structure of the ACA “compel the conclusion” that subsidies are available for eligible Americans in both federally run and state insurance exchanges.

The issue in the case (King versus Burwell) was whether the Internal Revenue Service (IRS) may extend tax-credit subsidies to individuals who purchased health insurance coverage through exchanges established by the federal government. (For more background on the case, see “Supreme Court to Determine ACA’s Future,” AAOS Now, April 2015.)

According to the petitioners, because the act literally says that subsidies will be available to those who purchase coverage through “an Exchange established by the State,” the IRS can only provide subsidies to individuals in those states that established their own exchanges, and not to individuals in states that use the federal exchange. According to the Department of Health and Human Services (HHS), an estimated 6.4 million Americans receive the subsidies in the 34 states that do not have their own exchange.

The government, on the other hand, argued that the section refers to any exchange set up by the state, including an exchange run for the state by the federal government. Ultimately, the Court looked to the broader context and structure of the law to support subsidies for insurance purchased on either state or federal exchanges. Chief Justice John Roberts explained that the subsidies are “necessary” for federal exchanges to function and to avoid the “calamitous result” that Congress meant to avoid.

“The combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral,” he wrote in the majority decision. “It is implausible that Congress meant the Act to operate in this manner … Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.”

This is the second time that the Supreme Court has upheld the law since its passage in 2010, signaling to many that changes to the legislation must be accomplished by the political process rather than the courts. In 2012, in a 5-4 decision in which Chief Justice Roberts also wrote the majority opinion, the Court upheld the individual mandate by ruling that the penalty assessed for failure to purchase insurance was a tax and thus valid under Congress’s authority to ‘lay and collect’ taxes. At that time, it also allowed the mandatory Medicaid expansion by making it optional to states.

Not up for future interpretation
In his opinion, Chief Justice Roberts noted that the plaintiffs presented a strong “plain-meaning” argument, but stressed that the ACA “contains more than a few examples of inartful drafting,” which should not detract from the overall point of the law. Among the dissenters, Justice Antonin Scalia had the strongest words, writing that it was “absurd” that “exchange established by the state” means the same as “exchange established by the state or the federal government.”

According to Justice Scalia, under all the usual rules of interpretation, the government should have lost the case. His dissent criticized the majority opinion for using context, not as a tool for understanding the terms of the law, but as “an excuse for rewriting them.”

Notably, the majority decision explicitly avoided a legal doctrine known as “Chevron deference.” This doctrine holds that courts should defer to agency interpretations of statutes that mandate action by the agency unless those interpretations are unreasonable. In so doing, the Court did not leave room for alternative readings based on the statute’s structure. As a result, future administrations cannot reinterpret the statute to withdraw the subsidies.

“The tax credits are among the Act’s key reforms, involving billions of dollars in spending each year and affecting the price of health insurance for millions of people,” wrote Chief Justice Roberts. “Whether those credits are available on Federal Exchanges is thus a question of deep economic and political significance that is central to this statutory scheme; had Congress wished to assign that question to an agency, it surely would have done so expressly. It is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort. This is not a case for the IRS.”

Reactions
The decision was quickly denounced by many Republican leaders, who have tried for years to repeal the ACA. Rep. Phil Roe, MD, (R-Tenn.) wrote, “The court’s ruling is a familiar SCOTUS maneuver to yet again salvage Obamacare by rewriting the law.” He went on to note that the decision would be “another devastating blow for struggling families,” and that the ACA “has only made a bad problem worse.”

However, according to the results of a Kaiser Health Tracking Poll, about 6 in 10 Americans said they approved of the decision. Even among Republicans and those who view the ACA unfavorably, about 3 in 10 say they approve of the Court’s decision.

Many political insiders believe this decision marks the beginning of the end for congressional repeal efforts, freeing up Republican legislators to focus instead on small changes, such as eliminating the medical device tax and the Independent Payment Advisory Board (IPAB). In fact, shortly before the Court’s decision was announced, the House passed legislation that would repeal the IPAB before it is activated.

“The prospect of an unelected board without adequate accountability being given powers to make recommendations on Medicare spending that are historically within the jurisdiction of members of Congress is irresponsible and would be devastating to the Medicare system,” stated AAOS President David D. Teuscher, MD.

Other issues that may come under scrutiny include the 40 percent “Cadillac” tax, the pharmaceutical tax, and the health insurance tax. Changes that would ease reporting requirements and expand small business tax credits may also be considered.

Additionally, the decision increases the likelihood that Congress will focus on passing other bipartisan health care bills, like those focused on Food and Drug Administration approval and health information technology. Rep. Roe pointed to the bipartisan passage of the Medicare and Children’s Health Insurance Program (CHIP) Reauthorization Act, which changes the way Medicare pays physicians, as an example of how bipartisan work can “change health care for the better.”

The decision is also having an impact in the states. At least three states (Vermont, Hawaii, and Minnesota) are considering moving their technology-plagued state-run exchanges to the federally run HealthCare.gov website. The Court’s decision means they can make that move without disqualifying their residents for subsidies. Other states may consider new kinds of exchanges that mix federal and state operations. For example, one hybrid model, called a State Partnership Exchange, allows states to serve as the primary point of contact while working with the HHS to establish an exchange that best meets the needs of state residents.

Employers are also being affected by the decision. If the challenge had succeeded, no penalties could be assessed on “applicable large employers” in states using a federal exchange, even if the employer failed to offer group health plan coverage to substantially all of its full-time employees. Now, however, compliance with the ACA’s employer shared responsibility rules will go forward as planned.

The political fallout from the case, however, is a different matter. Attempts to challenge, refine, or repeal the ACA will likely continue into the 2016 presidential election. Republican presidential hopefuls have suggested that electing a Republican president—in addition to maintaining their hold on Congress—may now be the only way to rewrite the health care law. Democratic front-runner Hillary Clinton, on the other hand, stressed that the SCOTUS opinion affirms health insurance should be affordable and available to all.

“The big lawsuits are over,” said Tom Miller with the American Enterprise Institute. “But [there’s] no expiration date on rhetoric.”

Elizabeth Fassbender is the communications manager in the AAOS office of government relations. She can be reached at fassbender@aaos.org

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