King V. Burwell: Understanding the Fate of the Nation’s Health Insurance Marketplace

Last November, the Supreme Court agreed to take up a case with potentially far-reaching ramifications for the future of the nation’s widely watched health insurance exchanges (HIXs). While the issue at hand — whether the promised tax credits for policies purchased by individuals through the HIXs apply to both state-run and federally operated exchanges — may seem slightly arcane, it may ultimately decide the entire future of the 2010 U.S. Patient Protection and Affordable Care Act (ACA), including its HIX experiment. (Paradoxically, a recent poll conducted by the Kaiser Family Foundation finds that more than half of the U.S. public "continues to say they have heard only a little or nothing at all about the case.")

Oral arguments for the case, King v. Burwell, were heard earlier this month, and should help inform a decision expected by late June or early July. According to a number of sources, including The Hill, “predicting the outcome of a Supreme Court decision based upon questions asked at oral argument (and the responses to those questions) is a hazardous undertaking.” 

King v. Burwell is actually the most prominent of four similar cases — two (Halbig v. Burwell andPruitt v. Burwell) put on hold while the Supreme Court makes its decision and one (Indiana v. IRS) awaiting a district court ruling following arguments last October. The U.S. Department of Health & Human Services argues that the ACA’s provision for tax credits extends to the federally operated HIXs, while the plaintiffs contend that they are limited to the state-run exchanges. If the court sides with the plaintiffs, the impact on the nation’s HIXs —regardless of who controls them — could beprofound, altering the face of our nation’s healthcare insurance marketplace.

Subsidized private insurance, which is the point of contention in King v. Burwell, offers tax credits — often worth hundreds of dollars per month — to people who are unable to secure coverage through their job, Medicaid, or Medicare. People can qualify for these payments if they earn up to four times the federal poverty level. That means, for example, that an individual making up to $46,500 per year, or a family of four earning $95,000 per year, in this population bracket could receive support. 

Timothy Jost, a health law professor at the Washington and
Lee University School of Law, has written that if the plaintiffs succeed, and subsidies are found to be limited to policies purchased on state-run exchanges, approximately five million Americans covered under federally operated HIXs could lose their tax credits. If this happens, some say that the ACA’s individual mandate – the economic foundation of the bill that requires most of the uninsured U.S. public to purchase insurance or face a tax penalty – might become obsolete. If people are refused tax credits to support the costs of their health insurance, they may be more likely to qualify for an exemption from the mandate, ultimately undermining the authority of the ACA. After all, according to a brief by the RAND Corporation, eliminating subsidies in states with federally facilitated marketplaces would cause premiums
in those states' individual markets to rise by 47% and enrollment
to fall by 70%.

In light of these discussions, supporters of the plaintiffs have put an optimistic spin on this potential series of events. They argue that if subsidies from federally operated exchanges are abolished as a result of King v. Burwell, it could actually spur development efforts by the 34 states that have not yet established state-run exchanges. If this were to happen, individuals purchasing health plans would still be able to qualify for tax credit support.

The Supreme Court hearing earlier this month featured an equal mix of oral arguments on the principles of statutory construction (i.e., the plain language versus the congressional intent of the ACA) and the potential consequences if the plaintiffs' position prevails. However, it was this latter set of arguments which received the most critical reactions from the justices interested in understanding the real world implications if the Supreme Court were to rule in favor of slashing tax credits for federally operated HIXs. Justice Kennedy, for example, who is being eyed as the swing vote for the government’s position, expressed concern that if the plaintiffs' argument is accepted, “the States are being told either create your own Exchange, or we’ll send your insurance market into a death spiral.”

Whichever way the Supreme Court rules, we don’t have much longer to wait to find out the fate of the ACA and our nation’s health insurance marketplace. Until their decision is announced in the coming months, learn more about this important case by visiting the Commonwealth Fund’sresource page on King v. Burwell.