The Supreme Court will hear a case on Wednesday that could jeopardize the future of Obamacare and imperil insurance coverage for millions of Americans.
The plaintiffs in King vs. Burwell contend that the subsidies on Obamacare’s federally-run insurance exchanges are illegal. Their case is based on little-noticed text of the Affordable Care Act that they believe makes it clear that subsidies are only available to ACA marketplaces that are “established by the state,” rather than the federal government.
The Obama administration, which is defending the ACA, says that is a willful misreading of the law that ignores its broader context. "If you look at the law, if you look at the testimony of those who are involved in the law, including some of the opponents of the law, the understanding was that people who joined a federal exchange were going to be able to access tax credits just like if they went through a state exchange," President Obama told Reuters on Monday.
The Democrats in Congress who authored the law agree that it was never their intention to deny subsidies to those who purchased insurance on the federal exchanges, which the federal government has set up in states that declined to establish their own Obamacare marketplaces. The administration also argues that in cases where Congress’s intent is ambiguous, regulators are responsible for interpreting the statute—in this case, the Internal Revenue Service, which determined that subsidies should be available to everyone.
If the plaintiffs prevail, more than 7 million Americans in up to 37 states are expected to lose the subsidies they receive to help pay for their insurance coverage they purchases on the federal Obamacare exchanges.
More than 85% of those covered through the exchanges receive subsidies, which are based on income, and many would not be able to afford coverage without them. For 2015 coverage, subsidies are available to an individual with earning up to $45,960 a year and a family of four earning up to $95,400.
Without the subsidies available on the federal exchanges, analysts believe that only the sickest patients will be willing to buy coverage and healthier patients will exit the insurance pool. As a result, insurance premiums could skyrocket for everyone else who remains on the federal exchanges—what’s known in policy circles as an insurance “death spiral.”
And if insurance on the exchanges becomes unaffordable when the subsidies are stripped away, millions of Americans would also be exempt from complying with the individual mandate to purchase insurance, under Obamacare’s hardship exemption. That’s the outcome that the plaintiffs in King vs.Burwell lawsuit are hoping for.
If the court strikes down the subsidies on the federally-run exchanges, some of the affected states could decide to set up their own state-run exchanges to protect insurance coverage for their residents. But that would require the political will to preserve Obamacare as setting up the exchanges would require significant time and resources. As The New York Times points out, seven states have already passed laws prohibiting them from moving forward with their own state-based exchanges.
In theory, Congress could pass a simple bill amending the ACA if the Supreme Court rules strikes down the subsidies. But Congressional Republicans have no intention of doing so, arguing that a strike against Obamacare pave the way towards dismantling the entire law.
“No family should pay for this administration’s overreach. That is why House Republicans have formed a working group to propose a way out for the affected states if the court rules against the administration,” Reps. Paul Ryan, John Kline, and Fred Upton write in The Wall Street Journal. “What we will propose is an off-ramp out of ObamaCare toward patient-centered health care.”
Republicans have remained vague about their proposed solution, however. In a separate op-ed this week, three Senate Republicans say that the GOP "would provide financial assistance to help Americans keep the coverage they picked for a transitional period,” then allow states to create their own alternative marketplaces. But they provided few details about what that plan would actually mean, as Vox’s Ezra Klein explains.
The Obama administration denies that it has any kind of contingency plan in the event of an advert court ruling. "If they rule against us, we'll have to take a look at what our options are. But I’m not going to anticipate that. I'm not going to anticipate bad law," Obama told Reuters.