Forbes, February 12, 2015
One of the mechanisms through which the Affordable Care Act (ACA) expands access to health insurance is through tax subsidies provided to individuals to help offset the cost of health insurance. These subsidies are only available if people purchase highly-regulated and -mandated policies that are sold only through government-run insurance exchanges.
The law’s formula for determining the amount of these premium subsidies specifies that people are eligible for them if they are enrolled in qualified plans offered in “an Exchange established by the State under [section] 1311 of the Patient Protection and Affordable Care Act.” However, only 13 states are operating state-based exchanges this year. The rest are relying on exchanges created by the federal government. In 2012, the IRS wrote a rule that allows the subsidies to flow through the federal exchanges as well.
The Supreme Court has agreed to hear a case, King v Burwell, challenging the illegal IRS rule which, despite statutory language to the contrary, authorizes people to get subsidies in the federal exchanges. Petitioners argue that the law clearly restricts the subsidies to state exchanges; that this gives states an incentive to create their own exchanges; and that administrative agencies like the IRS cannot alter legislation without statutory authorization by Congress. Respondents say that “established by the State” is at worst a drafting error, not a reflection of legislators’ intent, and that Congress wanted subsidies to be available to citizens in all of the states.
The Supreme Court justices will hear oral arguments in the case on March 4, and the justices will privately cast their initial votes soon afterward on whether they believe the law allows the subsidies in the federal exchanges. If the justices decide that the IRS acted illegally in opening federal exchanges to subsidies, citizens in states that have defaulted to the federally-created exchanges soon would be ineligible for the subsidies. As a result, most would begin to face the full cost of the unsubsidized premiums on their policies and would be more likely to drop their health insurance coverage.
The Obama administration’s goal is to enroll 9.1 million people in health insurance this year in the 37 states where it is operating federally-facilitated exchanges. Because an estimated 87 percent of people enrolled are receiving taxpayer subsidies for their coverage, that means up to 7.9 million people could be impacted by the decision.
Many court watchers believe the King v Burwell decision could hinge on whether or not Congress has a viable plan to provide for alternative, if not continued, coverage for them.
Many leaders in Congress recognize the court needs to be reassured that legislators have a plan to address this issue. As a result, efforts are underway for Congress to develop legislation that would create a transition path to other types of subsidized coverage, particularly a safety net for lower-income individuals currently covered by policies in federal-exchange states. The legislation should not only take care of people who are at risk of losing their current coverage, but also use this as an opportunity to begin to move our system toward a more competitive market, centered around individual choice.