Today's surprising decision from the Supreme Court accepted the government's argument: that a technical glitch cannot be allowed to undermine the fundamental purposes of the law, so the statute must be interpreted to provide subsidies for all individuals enrolled through Exchanges. 

As reported in prior e-alerts, the individual subsidy and employer penalties only apply to the purchase of insurance on an “Exchange established by the State under Section 1311 of the [ACA].”   If a state fails to create an Exchange, an Exchange will be created for the state, but by the federal government (not the state) and under Section 1321 (not Section 1311).  To bridge the gap, the IRS adopted a regulation that allows subsidies (and penalties) for insurance purchased on either a state- or federally-established Exchange.

So the Supreme Court challenge revolved around eight words (out of over 400,000 in the statute and 11,000,000 in the regulations): “Exchange established by a State under Section 1311”.   The challengers took the position that these words meant what they say:  only folks enrolled in State-created Exchanges are eligible for the subsidies.  But the Court said that this language is ambiguous, and the "ambiguity of the language may only become evident when placed in context".  Thus, the Court read this language together with the rest of the statute, and Congress’ intent, finding that individual subsidies were key to the fundamental purposes of the law and the words must be interpreted to include people enrolled in Exchanges that are established by the federal government when the state fails to do so.

The Justices apparently were swayed by the fact that ruling against the administration in this case would severely destabilize the structure of the entire law.  If the ruling had gone the other way, individual market premiums were expected to skyrocket, as healthy people that lost their subsidies dropped coverage, but sick people that desperately needed coverage remained.  Moreover, a ruling against the administration would have undermined the employer mandate: employers no longer facing "pay or play" penalties may well have restricted coverage, or dropped it altogether.

The Court said: "Petitioners’ plain-meaning arguments are strong, but the Act’s context and structure compel the conclusion that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid."

Individuals and employers will see no change from this ruling: we just stick to the status quo.  But the ruling is a major win for the Obama administration, and likely is the last major challenge to federal health reform.