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  


15 replies »

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  2. This presupposes that the best way to provide insurance is to allow lawyers to sue anyone, anytime with no penalty or consequence, giving insurance companies total freedom against antitrust laws, the ability to fix prices by county (as if an artificial border made one healthier or sicker), and employing redundant levels of federal and state bureaucrats to guarantee the insurance company markets, decide for patients and doctors how they should interact and what treatments the doctor should prescribe, etc. is the very best way to provide health care. You should read Betsy McCaughey who actually knows how to reconstruct the system.

  3. Joe, I brought up guaranteed issue for this reason.
    If guaranteed issue continues, then the removal of subsidies and mandates will be disastrous. Republican insurance buyers in the individual market will be hurt along with everybody else.
    A law professor named Randy Barnett is the only commentator who I think has grasped this. Avik Roy does also. see….


    I am not opposed to guaranteed issue myself. But it needs a lot of regulatory framework around it, or private individual insurance will disappear.

  4. The subsidies were the incentive for establishing exchanges by states. The language was repeated eleven times so it wasn’t accidental. If Obama wanted affordable coverage he would have insisted on tort reform, interstate sales, privately ru exchanges and a cafeteria style menu of options. Instead he wanted more govt jobs or govt controlled jobs, aka Medicare contractors. That has nothing to do with health care.

  5. Our doctors have and they are located in New York. Other insurance pay non participating doctors 50 to 80% of reasonable and customary fees. That would be fine. Your comment about 1949 only makes sense if all those folks don’t go on Medicare. It sounds like you either work for Medicare or earn your living consulting for them. The panels decide what treatment people should get. They’ve already limited mammograms guaranteeing an early death to some women. Some people like to pretend these are not death panels.

  6. > The Baby Boom generation was births from 1946 to 1962.

    Yes, of which only those born by 1949 are currently eligible for Medicare. The 1950 cohort becomes eligible this year.

    > ACA stripped hundreds of millions from Medicare

    Yes, mostly from Medicare Advantage. Not by limiting what Medicare would pay for.

    “Death panels” are a myth. If there is something in the law that constitutes a “death panel,” feel free to point it out.

    > making sure docs dropped out

    Which they haven’t. As I pointed out above. Yes, doctors and hospitals are getting squeezed on Medicare reimbursements. But that has not resulted in any significant numbers of doctors or hospitals refusing to take Medicare.

  7. ACA Page 110.

    “Subtitle E–Affordable Coverage Choices for All Americans.”

    Not “Affordable Coverage Choices for ONLY Those Americans Living in States That Follow PPACA Legislative Intent and Establish Health Insurance Exchanges.”

    King hinges on clarity of “intent,” not constitutional legislative excess. HIX intent is clear, most notably via Section 1321 (pp 85-86).

  8. The Baby Boom generation was births from 1946 to 1962. ACA stripped hundreds of millions from Medicare to subsidize premiums for others. It created the death panels to limit coverage & as you state, control costs. That was by making sure docs dropped out & we pay cash.

  9. Oh, and by the way, there are not “tens of millions” of boomers even eligible for Medicare. Most demographic authors consider the Boom to have started in 1946. There were 14.5 million Americans born in 1946-1949, according to the Bureau of the Census. There were another 3.6 million (including me) born in 1950, the cohort that becomes eligible this year.

  10. I have difficulty figuring out what you are talking about. The bill we are talking about here is the ACA. If by “the bill” you mean the ACA, that was mostly not about Medicare, and it certainly didn’t “gut” it. The ACA attempted to put in place some deeper controls over the pricing in Medicare.

    The assertions that “a high percentage of MDs dropped out” and that “tens of millions of baby boomers” are therefore having to do without the benefits of any medical insurance at all and are “self funding” their healthcare beg for some kind of reference to a fact, a study, anything. Oh, here we are: http://kff.org/medicare/issue-brief/medicare-patients-access-to-physicians-a-synthesis-of-the-evidence/. Apparently, three years after Reid allegedly gutted Medicare and all those doctors fled so that boomers are left high and dry, the Kaiser Family Fund found that only 1% of doctors had actually resigned from the program, with the biggest percentage being psychiatrists. 96% of Medicare beneficiaries had a regular doctor; of those who had to find a new doctor, only 2% reported having any trouble. And doctors take on new Medicare patients just about as often as they take private patients.

    After telling us that about this alleged gutting you say, “The courts didn’t mind doing that,” just after telling us that Senator Reid did it.

    Then follow four sentences of speculation about the future all built on unsupported assumptions.

    It is actually hard to forecast how SCOTUS will rule in this care, or what will b the results of any way it might rule. This article does a good job of laying out the possibilities.

  11. The provision in question has nothing to do with guaranteed issue or any other part of the ACA. It asks only whether people who sign up for insurance through Healthcare.gov rather than through a state-built exchange can get subsidies to help them with the cost.

    Furthermore, guaranteed issue was implemented several years ago and has already been absorbed into the health plans’ pricing structure. This is one of the reasons that premiums have not risen on average on the ACA exchanges for 2015 over 2014.

  12. Here is the real question: if subsidies stop, will the insurance companies stick around? Will the anti-Obamacare states be allowed to re-introduce full underwriting?
    Guaranteed issue is the largest reason for higher premiums. But will the insurance industry want to re-tool their old products? In some states, and maybe only for two years? I wonder.

  13. Senator Reid used “reconciliation” to shove the bill down taxpayers throats gutting Medicare to the point that a high percentage of MDs dropped out forcing customers to self fund health care. That deprives tens of millions of baby boomers of medical insurance. The courts didn’t mind doing that.

    No one will be unable to get health insurance. In those states which chose not to set up exchanges, they will be free to set up affordable insurance programs free of the yoke of Federal mandates and funding Federal bureaucrats. The savings is likely to be enormous. The US Supreme Court would be doing everyone a favor.