King v Burwell: Three Scenarios


By now, every reader of THCB must be aware the Supreme Court is hearing arguments this week in a case that could undermine much of Obamacare. Simplifying somewhat, the plaintiffs in King versus Burwell argue that the phrase “exchange established by the state” in the Affordable Care Act’s section 1311 dealing with tax subsidies precludes making such subsidies available to those who enroll through the federal exchange(s).  The government argues (a) that other sections of the law make it apparent that all exchange enrollees are potentially eligible for subsidies, and (b) that language in section 1321 providing that HHS shall “establish and operate such exchange within the state,” where a state is unable or unwilling to create their own exchange, essentially establishes a state exchange.

As many media articles have commented, the implications of a SCOTUS ruling for the plaintiffs are huge. Some five to eight million enrollees in the 34 federal exchange states would lose their subsidies, making insurance unaffordable for many of them, and premiums in these states would skyrocket—all while leaving the existing tax fines for being uninsured in place.

The political fallout will depend on the actual ruling (due in early June). Democrats would take another hit to their credibility, of course, if their sloppy bill drafting results in much of their centerpiece legislation being demolished. Republicans, however, may also face some problems, and could find they should have been more careful about what they wished for.

What might SCOTUS rule, and what might be the political response? There seem to be three possible scenarios.

First, the majority may simply uphold the law as interpreted by the administration. Given the publicity surrounding the case, this would be a big political win for the White House, and could whittle away at some of the continuing public opposition to Obamacare, in turn making its future replacement a little less likely. Is this a probable outcome? The tea leaves are mixed. Prior SCOTUS rulings have emphasized the importance of interpreting the intent of an entire piece of legislation, rather than focusing on a few words. On the other hand, justices have been clear that it is not their role to legislate; changes to law are the responsibility of Congress.

Second, the five conservative justices could rule unreservedly in favor of the plaintiffs. This would effectively doom federal exchange operations in 34 states and leave millions uninsured. The most conservative governors and legislators might accept this regardless of the consequences, while moderates might decide to avoid the political heat by creating state exchanges (although whether funding would be available is uncertain). It is also conceivable that the White House and Congressional Republicans could agree to re-establish the subsidies by horse-trading these for the removal of other more intensely disliked ACA provisions, but given House Republicans’ typical refusal to consider any deals with the administration, this could be difficult to achieve.

Third, the justices could rule in favor of the plaintiffs in such a way as to allow contracting with HHS for (most or all) exchange functions to be legally equivalent to establishing a state exchange. Such a ruling would be consistent with conservative views of states’ rights and also with the prior SCOTUS decision on Medicaid expansion, since it puts decision-making clearly in the states’ hands. “Not over my dead body” conservative state leaders would be happy, while others would have the option of allowing the tax subsidies to continue.

Either of the last two scenarios could possibly be used by Democrats against Republican conservatives. For example, HHS could offer—and publicize—very considerable help in transferring federal exchange functions to states (or, under the third scenario, offer to contract for their operation). Even a conservative governor like Scott Walker might worry about the consequences in the middle of election season of rejecting an offer that would allow hundreds and thousands of his citizens to retain their coverage.

There’s plenty wrong with Obamacare, but a ruling that effectively takes away millions of families’ coverage with no recourse would look like overkill. We’ll have to wait and see. The justices’ questions this week will provide some clues, but we won’t know until June how big of a problem has been created.

Roger Collier is the founder of the Campaign for a Rational Healthcare System