The Subsidy Lives! SCOTUS Bails Out Congress Again

Chris Allesee

Last time, the U.S. Supreme Court endorsed the argument that the penalty for violating the individual mandate under the Affordable Care Act was permissible within Congress’s power to tax, even though it certainly hadn’t been represented as such when its supporters were pitching the ACA to the public. Now, instead of helping supporters justify a questionable sales pitch, the Court has saved Congress from its own poor drafting in its opinion released this morning in King v. Burwell, with a (surprising) 6-3 decision.

At issue was whether the tax subsidies under the ACA could be used to purchase coverage only under the state health care exchanges, or under both the federal and state exchanges. The ACA clearly states that the subsidies are available through “Exchanges established by the State,” but considering 36 states have not set up their own exchanges, reading this provision too literally would threaten the economic assumptions underpinning the entire act. Most prognosticators (including our own) accurately guessed that the Court would save the ACA by reading into the law’s intent.

The Court went to great lengths to justify the conclusion that the phrase “Exchanges to be established by the State” is ambiguous (check out the opening paragraph of Scalia’s dissent…”That is of course quite absurd, and the Court’s 21 pages of explanation make it no less so.” Amusing, as always). With the ambiguity issue out of the way, the Court looked to the context of the ACA’s three primary reform provisions: (1) guaranteed issue and community rating; (2) requiring individuals obtain coverage; and (3) the subsidies. The Court reasoned that if you take away the subsidies, then in the 36 states using the federal exchanges, the coverage requirement is meaningless (coverage would be too expensive and they would not be subject to the tax penalty). And if the coverage requirement falls apart, then community rating and guaranteed issue won’t stop the health care cost “death spiral” because the population obtaining health care will again consist only of those that are sick and need coverage. Ultimately, the Court decided that the symbiotic relationship between the three major reform provisions meant that Congress must have intended for the subsidies to apply to all exchanges.

So, what does this opinion actually mean? Very little. Similar to the Tibble v. Edison decision last month, it really only solidifies the status quo, and allows us to continue operating as we have for the last few years. There will continue to be legal challenges to various aspects of the ACA, and maybe some will be successful. But for now, it looks like the Court has Congress’ back. We will continue to digest the opinion to make sure it will not result in any substantive changes, and stay tuned for updates.