JURIST Guest Columnist Sallie Thieme Sanford of University of Washington School of Law discusses the decisive impact of the most recent Supreme Court ACA decision on the Marketplaces and also on state decisions regarding Medicaid expansion. She argues that the Court’s decision in King v. Burwell not only averted the ACA’s potential destruction but also places it on more solid footing in the face of ongoing legal, political and practical challenges….

The November 1, 2015 beginning of the Affordable Care Act’s third health insurance open enrollment season highlights the decisive impact of the US Supreme Court’s most recent Affordable Care Act (ACA) decision. In late June 2015, the court handed down King v. Burwell, holding that the ACA authorizes the federal government to provide subsidies throughout the country to help low and middle-income people buy health insurance. These subsidies are a crucial linchpin of the ACA’s efforts to expand access to health insurance and, by extension, to expand access to health care and good health.

Beyond saving the law, the court’s 6-3 decision in King v. Burwell solidifies it. It grounds the crucial subsidies in the statute’s design rather than in an agency’s regulatory choice. It highlights key policy bases for the ACA’s framework. And it paves the way for access across the coverage continuum.

Key Subsidies on the Federally Run Marketplace

The ACA creates Marketplaces (also known as exchanges) where people who lack health insurance can buy private plans for themselves or their families and receive premium subsidies to do so if they are income-eligible. These subsidies are technically advanceable, refundable tax credits that generally go directly to the insurance company chosen by the purchaser; hence the Internal Revenue Service (IRS) is the federal agency that administers them.

Many states set up their own Marketplaces, as anticipated by the law, but about three dozen declined to do so and thus left the federal government as the fallback to run them through the healthcare.gov portal. Healthcare.gov and the dozen or so state-run portals also serve the important function of directing eligible people to state Medicaid programs, which cover low-income citizens to differing extents depending on the state.

For coverage effective 2015, about 8.8 million people purchased a plan through a federally run (rather than state-run) Marketplace. More than 85 percent of that number received an income-based premium subsidy. Subsidies are available to those who do not have other adequate insurance and whose incomes are between 100 percent of the federal poverty level (FPL) and 400 percent FPL. In the continental US in 2015, that translated to $11,670—$46,640 for an individual and $23,850—$95,400 for a family of four. The average subsidy for a single person was $263 a month, bringing the average price of their subsidized coverage down to $101 per month.

The question in King v. Burwell centered on language in the ACA that on its face seemed to make these crucial subsidies available only to people buying insurance on “an exchange established by the State.” The challengers argued that a plain reading of that language allowed the IRS to provide subsidies only to those who lived in a state that set up its own Marketplaces. Those who lived in the 36 or so other states were not, the challengers argued, eligible for these premium subsidies.

Without subsidies, the individual plaintiffs (and millions of others) would find their insurance statutorily unaffordable and thus be exempt from the ACA’s tax penalty for failing to maintain health insurance coverage. They would not have to have insurance, and they would not have to pay the tax penalty. With fewer people covered and predictably skyrocketing premiums, the ACA likely would have been upended by the resulting impacts on the health insurance markets, on health care providers, on patients and on employers.

ACA Destruction Denied

Chief Justice Roberts’ atypically short and straightforward opinion in King v. Burwell opens with a cogent summary of the policy bases for the ACA’s “series of interlocking reforms.” Functioning in tandem are three key reforms: the prohibition on pre-existing condition consideration; the requirement that most people maintain insurance; and the income-based premium subsidies for low and moderate-income purchasers.

The lack of all three together doomed state health reform efforts in the 1990s, the Roberts opined. Citing health economists, he raised the specter of a “death spiral” if the lack of subsidies makes insurance unaffordable for many and the expensively sick come to dominate the thus increasingly limited market for self-purchased insurance.

“Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them,” Roberts wrote for the six-justice majority. “If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.” Interpreting the ACA’s meaning was complicated, he noted, by “more than a few examples of inartful drafting.”

Roberts acknowledged that the plaintiffs made strong arguments about the plain, natural meaning of the words “established by the State.” Statutory language is not to be construed in isolation, however, but must be viewed, he wrote, with an eye towards the context of the language and the structure of the statute as a whole. Considering the challenged phrase within the context and structure of the ACA compels the conclusion that subsidies are to be available nationwide.

For example, the language that the ACA uses to create the fallback of a federally run Marketplace creates an equivalency between the two types of Marketplaces. As a fallback, the federal government is to set up and run “such Exchange,” applying the same statutory standards. Furthermore, the court concluded that many other provisions would make little or no sense if there were no subsidies to be had. For example, one ACA provision requires regular reports about the amount of subsidies provided on each Marketplace.

Many expected that the court would adopt the reasoning of underlying US Court of Appeals for the Fourth Circuit decision and uphold the subsidies on the theory that when faced with an ambiguous statutory provision, courts should defer to the reasonable interpretation of the agency (here the IRS) tasked with implementing it. A long line of cases utilize this type of analysis, known as the “Chevron framework” after the 1984 Supreme Court decision in Chevron v. NRDC. Roberts himself raised the possibility of this type of agency deference during oral argument. He asked the government’s lawyer whether, if the court did defer to the IRS’s interpretation here under a Chevron analysis, a subsequent administration could reach a different interpretation and revise the relevant regulations.

Ultimately, though, the court declined to apply Chevron to this issue. With billions of dollars and millions of insured lives at stake each year, interpretation of this central ACA provision “is not a case for the IRS,” Roberts wrote. It is not a situation in which the court should defer to agency interpretation. “It is instead our task to determine the correct ruling.” And the court determined that the IRS correctly applied the statutory framework in making subsidies available throughout the country.

With that analysis, the court foreclosed the possibility of a subsequent administration using regulatory revision to limit subsidies to the state-run Marketplaces. Doing so would instead require Congressional action to revise the statute, a much more complicated task, politically and practically.

“Pure Applesauce”

A notable aspect of King v. Burwell is the dissent written by Justice Scalia and joined by two others. The dissent is both colorful and scathing. Scalia chastised the majority for engaging in “interpretive jiggery pokery” to reach a result that is “quite absurd.” Of course statutory context matters, he wrote, but its use is “as a tool for understanding the terms of the law, not an excuse for rewriting them.” Characterizing part of the majority’s reasoning as “pure applesauce,” he concluded by opining that as the court has not once, but now twice effectively redrafted the ACA, the statute should perhaps be called “SCOTUScare.”

ACA Expansion Enabled

Whether called SCOTUScare or Obamacare, this historic health reform effort is now on much more solid ground. For the foreseeable future, premium subsidies are available throughout the country, regardless of whether the coverage is purchased through a federal or state-run Marketplace. A future administration could not undo King v. Burwell by simply revising the IRS regulation at issue.

Millions more might also receive coverage through Medicaid in states that, post King-v. Burwell, adopt the ACA’s option to expand this joint federal-state program to cover all uninsured citizens with incomes up to 138 percent FPL. Under the ACA, the federal government now picks up all of the costs of this “expansion population” with the federal contribution ultimately reducing to a 90 percent match. As of October 2015, 20 states (including populous Florida and Texas) had not expanded. With subsidies secure for those who purchase insurance on the Marketplaces, there may well be increased pressure on these states to adopt the expansion.

The Supreme Court in its 2012 National Federation of Independent Businesses [PDF] decision made the expansion optional for the states. This led to the current anomalous situation whereby millions of adults in non-expansion states are not eligible for Medicaid but make too little to qualify for premium subsidies (which are available only to those between 100 percent—400 percent FPL). Calls to bring the very low-income into the coverage continuum would have had much less force in the face of a collapsing individual market.

In the fall of 2015, Alaska expanded its Medicaid program, and Montana prepared to do so. King v. Burwell also keeps alive the possibility of “Red State” or “private option” Medicaid expansion in some states. This type of alternate program, first adopted by Arkansas, depends on drawing down federal premium subsidies that would otherwise be available to a subset of the low-income population (those with incomes between 100 percent FPL and 138 percent FPL). So, although King v. Burwell was not about Medicaid, it indirectly supports that major federal-state program.

Another consequence of the decision might well be in the nature of the Marketplaces. An early version of the ACA contemplated a single federal Marketplace. Pressure for more state-level control prevailed to shape the final legislation with its presumption of state-run Marketplaces and a federal fallback. Somewhat ironically, state-level opposition to the ACA has led to more federal control. Now, with the subsidies secure, more states might shift some or all of the functions of their Marketplaces to the federal government. In the summer of 2015 Hawaii did so. Many of the dozen or so states that continue to run their own Marketplaces face technical and financial challenges that make the federal fallback at least somewhat appealing.

The fierce political and policy debates over the ACA are sure to continue. There will be continued pressure to both refine the law and to repeal it. A few important legal cases are still pending. None of those cases, however, threaten to upend the entire statute as did King v. Burwell. The major legal threat to the ACA is gone, and with its resolution this health reform effort is on much surer footing.

Sallie Thieme Sanford is an Associate Professor at the University of Washington School of Law, with an adjunct appointment in the School of Public Health, Department of Health Services. This essay is based on a closing plenary talk at an October 20, 2015 conference that was jointly sponsored by the Northwest Regional Primary Care Association and the Community Health Association of Mountain/Plains States.

Suggested citation: Sallie Thieme Sanford, King v. Burwell: ACA Destruction Denied, ACA Expansion Enabled, JURIST – Academic, Oct. 28, 2015, http://jurist.org/academic/2015/10/Sallie-Thieme-Sanford-ACA-litigation.php.