Under the law, state governments can choose whether to set up their own Obamacare insurance exchanges or let the federal government do so. The plaintiffs argued that the law only provides subsidies for insurance purchased on online health exchanges set up by the state itself, rather than the federal government, pointing to a section of the law that says those subsidies are available on exchanges “established by the state.”
Defending the law before the court on Wednesday, the Obama administration argued that is neither what the law says nor what Congress had intended.
Throughout the arguments, the court remained largely split along ideological lines. But Justice Kennedy raised a point that opened up speculation about how the court could lean: He said there would be "a serious constitutional problem" if the plaintiffs prevailed, as getting rid of the subsidies could create a federal system that would illegally coerce states into setting up their own exchanges, given how essential they are to making the entire insurance marketplace work.
"If your argument is accepted, the states are being told either create your own exchange, or we'll send your insurance market into a death spiral. We'll have people pay mandated taxes which will not get any credit on — on the subsidies," Kennedy told the plaintiffs' counsel, Michael Carvin.
Justice Kennedy picked up the same line of questioning later in the arguments. "It does seem to me that if Petitioners' argument is correct, this is just not a rational choice for the States to make and that they're being coerced," he said. "And that you then have to invoke the standard of constitutional avoidance."
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Timothy Jost, a health law expert and professor at William and Lee University, believes that Justice Kennedy's remarks suggest that he's leaning in favor of the Obama administration in the case, which the court is expected to rule on in June.
There have been many cases in the past in which courts have been presented with two different interpretations of a statute, with one resulting in an outcome that's unconstitutional, Jost said. "The court will go with the interpretation that preserves the constitutionality."
That's partly because the high court also wants to respect the separation of powers. "The Supreme Court should not gratuitously strike down congressional laws, but rather assumes that Congress understands the constitution as well as it does" and does not usually set out to pass unconstitutional laws, Jost added.
The court's most conservative justices maintained, however, that the potential consequences of eliminating the subsidies were irrelevant as it was the court's job to consider text of the law as it was literally written. "Is it not the case that if the only reasonable interpretation of a particular provision produces disastrous consequences in the rest of the statute, it nonetheless means what it says?" Justice Antonin Scalia asked Solicitor General Donald Verrilli, who represented the Obama administration before the court.
Justice Scalia argued, moreover, that Congress would act to pass a remedy if the act of stripping away the subsidies was as catastrophic as the Obama administration predicts. "Congress adjusts, enacts a statute that—that takes care of the problem. It happens all the time," he said.
The liberal justices were even more aggressive, however, in pushing back against the plaintiffs' counsel. Justice Ruth Bader Ginsburg questioned whether any of the plaintiffs even had standing in the case, asking whether any of the Virginia residents challenging the law would even be forced to purchase insurance under Obamacare individual mandate, as they've argued. Justice Elena Kagan said that it was essential to consider the full context of the statute. Adopting the plaintiff's interpretation of the statute would result in absurd outcomes, she said. "We look at the whole text. We don't look at four words," she said.
But the final outcome is far from clear. Justice Kennedy made remarks suggesting he had separate concerns about the administration's defense of the law. Under questioning from Kennedy, Verrilli admitted that "you have ambiguity" in certain parts of the statute in question.
If that's the case, Kennedy responded, then the court would have to rely to a previous case, Chevron vs. Natural Resources Defense Council, which says that if a statute is ambiguous, then court should defer to the agency responsible for carrying out the law—which, in this case, would be the Internal Revenue Service. Kennedy seemed unconvinced by the Obama administration's argument that this would be the best course of action if the language is ambiguous.
"It seems to me a drastic step for us to say that the Department of Internal Revenue and its director can make this call one way or the other when there are, what, billions of dollars of subsidies involved here?" Kennedy told Verrilli.
Chief Justice John Roberts, another potential swing vote, was notably quiet during the oral arguments. In 2012, Roberts surprisingly sided with the court's liberal wing to uphold the constitutionality of the individual mandate.
A ruling against the subsidies would be a huge blow to a central pillar of the law and leave Obamacare’s future in jeopardy. While the Supreme Court’s 2012 ruling undermined the law’s Medicaid expansion, allowing states to decide whether or not to expand coverage, the King vs. Burwell case stands to disrupt coverage for millions who already have obtained it under Obamacare.
If the court sides with the plaintiffs, an estimated 7.3 million Americans would lose subsidies that have made their coverage affordable in up to 34 states that have federally run exchanges. The vast majority of Americans who have purchased insurance through the marketplace receive subsidized insurance, which is available to individuals with incomes up to $45,960 a year and a household of four earning up to $95,400.
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Many of these Americans would no longer be able to afford their coverage if their subsidies are stripped away. But even those who don’t receive subsidies would see their premiums rise by 35% on average, according to Brookings, as healthier customers would be the first to drop their coverage. As a result, millions of Americans would be newly exempt from having to purchase insurance under Obamacare's individual mandate, which the plaintiffs hope will come to pass.
It's unclear what will happen if the court decides to eliminate the subsidies. Many of the states with federal exchanges are controlled by Republicans that oppose the law, and only six of them come out to support the administration's position in the case. Congressional Republicans, meanwhile, argue that the case will ultimately provide "an off-ramp out of Obamacare" and clear a path towards a better alternative.
In the hours leading up to the oral arguments, pockets of demonstrators held rallies outside the steps of the Supreme Court on a damp March morning, pressing for the court to preserve this key pillar of Obamacare.
Dr. Marcus Sandling of New Jersey, a third-year medical resident, came out to protest the case because he's treated many patients who've directly benefited from Obamacare. "So many were not able to afford insurance beforehand," said Sandling, shortly before the oral arguments began on Wednesday.
New Jersey decided to have a federally run exchange, and Sandling doubts that his state would take enough action to preserve the subsidies if the court struck them down—particularly if New Jersey Gov. Chris Christie runs for president in 2016. "I doubt we'd be able to have a cohesive solution," he said.