King v. Burwell – Will the Supreme Court Tip the ACA Dominos? Part 2

by Locke Lord LLP

In our previous blog post, we evaluated the legal issues at stake in King v. Burwell. We will now examine some of the ramifications of a Supreme Court decision that goes against the Obama Administration, assuming such were to occur.

Reasonable minds can agree, and often the ACA’s opponents strongly emphasize, that the ACA only authorizes the availability of subsidies to low and moderate income consumers who purchase health insurance coverage “through an Exchange established by the State.” This phrase – “through an Exchange established by the State” – is repeated nine times throughout the ACA. Therefore, argue the plaintiffs in King and similar cases, the use of ACA subsidies to reduce the cost of health insurance purchased through Exchanges that are run by the federal government is prohibited. The plaintiffs further argue that the U.S. Department of Treasury cannot change the statutory provisions of the ACA through its own rule-making and magically make subsidies available to consumers purchasing health insurances on federally-run Exchanges.

Armed with the pivotal seven word phrase (quoted above) excerpted from the ACA, King v. Burwell lines up four residents of the Commonwealth of Virginia against the Obama Administration. Virginia’s Exchange is run by the federal government. The four King plaintiffs did not want to purchase comprehensive health insurance of the type required by the ACA for most Americans. The plaintiffs also believed they would be exempt from the individual mandate because such insurance coverage, if not subsidized for them, would be too expensive.

The King plaintiffs contend that, because they received subsidies to which they should not have been entitled under the ACA, they lost the ability to qualify for the unaffordability exception to the individual mandate. The unaffordability exception applies when the cheapest available plan offered on the Exchange is more than eight percent of a consumer’s income. The relief plaintiffs are seeking is to eliminate their eligibility for federal tax subsidies for health insurance that could be purchased on Virginia’s federal Exchange which, in turn, would reinstate plaintiffs’ eligibility for the unaffordability exception. In the end, if the plaintiffs were to prevail, they would neither be required to purchase ACA-compliant health insurance nor be required to pay an individual mandate tax penalty.

If the Supreme Court were to decide King v. Burwell on grounds that permitted the King plaintiffs to achieve their objectives, federal subsidies would likely be lost to consumers residing in states with federal Exchanges and, perhaps, those states with partnership Exchanges as well. This may result in a staggering 6.4 million Americans losing subsidized health insurance, as estimated by some commentators.

Moreover, the individual mandate could be rendered moot for Americans with modest incomes residing in states with federal or partnership Exchanges. With unsubsidized health insurance now unaffordable in their states, many more Americans would no longer be facing a tax penalty for failing to purchase quality health insurance. Further, in these states with federal or partnership Exchanges, the employer mandate would seem to become unsupportable. Without the risk that the federal government would have to pay subsidies to employees otherwise eligible for affordable, quality health coverage from their large employers, there is no rational basis in the ACA’s shared responsibility policy for the federal government to enforce the employer mandate in states that are not running their own Exchanges, and violations of the employer mandate in such states would not seem to yield penalties against offending employers.

The potential outcome of King v. Burwell has not captivated the nation’s attention in the same dramatic fashion as during the run-up to the Supreme Court’s 2012 decision in National Federation of Independent Business v. Sebelius. It is understandable why some – whether ACA supporter, opponent or agnostic – view the King decision as being narrow in scope and without the ability to significantly alter the course of the ACA. However, if the Supreme Court chooses not to reinforce a key element of the ACA by extending subsidies to federal Exchanges, it is very possible that the nation’s newly improved non-group health insurance marketplace could begin to crumble.

How long could health insurers afford to offer guaranteed-issue insurance in the federal Exchange states, without underwriting for pre-existing conditions or other risk factors, after the individual mandate – which already is viewed by some as being too tepid – suffers yet another blow? Although Congress has the power to fix the ACA’s language to permit subsidies for eligible consumers purchasing health insurance on Exchanges in all states, early indications of proposed legislation would offer President Obama the ability to save the subsidies, but perhaps only at the expense of an outright loss of both the individual mandate and employer mandate. The President has already rebuked such proposals. Although some Governors have signaled that they would establish state-based Exchanges in the event the Administration loses in King v. Burwell, there remain potentially daunting obstacles to bringing these intentions to fruition. Governors may be willing, but state legislatures may have opposing political priorities or may be unwilling to tap into state budgets that are still recovering from the Great Recession to appropriate necessary Exchange funding.

Bottom line: the ACA dominos seem to be lined up once again awaiting a decision from the Supreme Court. If the Obama Administration suffers a loss in King v. Burwell, millions of Americans may lose subsidized health insurance coverage. Moreover, the ACA’s framework of shared responsibility could begin to slowly erode, at least in those 34 states which have not yet established their own Exchanges. And, with so many Americans and U.S. businesses affected, we have to ask whether this could cause the health insurance market reforms of the ACA to unravel. Stay tuned – the suspense is almost over!

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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